The "bad loans" don't scare me much those as most loans have buyers with skin in the game in regard to down payments, proving they can repay, etc.There is some talk going around about helocs adjusting, and loan modifications adjusting, that may add some desperate sellers to the market but we will see.

Yes, which is not a problem to show them the skin in the game.

  - Yes, be careful of any agent, because they have no skin in the game if you can't make it work.

If you have ZERO skin in the game and he is going to split the cashflow with you 50/50 for 5 years, then he is an idiot (or perhaps it is a family member willing to help you out?)

I'd recommend trying to partner with a builder that is willing to put skin in the game.

Add to that the type of tenant you have to manage and the type of maintenance that would be required (with a tenant who has no skin in the game and who has historically been unable to keep their housing, for whatever reason)--AND they'd be living literally in my back yard?  

There are a tons of ways to skin the cat in RE. 

If they are investing their money in your property, they have more skin in the game.

While I am a stickler for compliance, issues do arise where there is more than one way to skin a cat, so long as you can justify what you do.

There are many ways to skin the cat.