I’m curious what terms you ended up agreeing to with the contractor (profit split percentages)?

I have a couple thoughts, and what solution is best will ultimately come down to what works best for each of you.Option 1 would be that the two of you being equity partners in an LLC, split at whatever percentage you agree on.  

I agree with @Donovan Castaneda, you need to take out a percentage for vacancy (I do 10%), and depending on the condition of the property, a percentage for maintenance (I like to start at 10%, but love to be able to build in more, as I sometimes mix maintenance and cap ex).

You will have vacancy and you may not get full year rentals for students.This does look like a good deal based on the monthly rent to price percentage. @ $395 X 5 it works out to 2.5%.

How are people making money with those interest percentages? 

I do not have a percentage but you will see when you read the other posts that people tend to realize the benefits and then determine that RE investing is something they should consider more seriously.There are many of us in the Bay Area - I recommend attending one of the BP meet ups in SF or San Jose (San Jose has one tomorrow).

If you do outsource first, I would not strictly focus on the management fee percentage (i.e 7% vs 5%) ... some of the most expensive property managers I've ever had have charged the lowest fees; 5% does not mean a whole lot if they pick your pockets with marked up repair invoices, select bad tenants that don't pay rent & trash the place, and ignore the repair requests of good tenants causing small problems to get large.

Should I have just the down payment ready, or the down payment+closing costs, or a certain percentage of the entire loan?

What I do is make an offer I feel comfortable with and offer the seller a percentage of the overage. 

I would highly suggest you use a company that works on a percentage of the total income as opposed to a flat fee.