As it is a third party lender, I can even deduct the interest of the loan as an investment expense.There are few lenders specialized in Cash Value Line of Credit (CVLOC).

Seller Financing plus private party loan How did you add value to the deal?

So steps are :Create promissory note plus deed of trust(if needed)Buy property cash (using all parties funds)Renovate propertyRent UnitsRefinance property under a new loan (with your name)Pay back partnerChange Title to a holding LLC or yourself (Could be done earlier)That's it.

With my specific situation, when we put in our offer (going up against two other parties), we included a $5,000 seller's assist upfront. 

I would also have a  third party hold t he money.If they do not give you the money back, immediately go down and place a lien on the property. 

Now with that being said, we have run into a lot of parties in certain parts of cities with colleges or younger populations.

I have 15yrs experience in the industry but my company does not do 3rd party management at this time.

Which part is exempt?

Generally "losing party pays winners reasonable costs" is allowed. 

Perhaps a nice 1950's built bungalow.Always hire a 3rd party property inspector to give you an unbiased feel for the home.