In this arrangement, I would bring financial funding, as much assistance in renovations that I can (no where close to what he can bring), recruiting/maintaining renters, and taxes/financial work (including managing accounts for cap-ex, mortgage, etc).

Your offer and contract would be between yourself and the homeowner contingent on a short sale approval from the bank.A benefit with dealing with a short sale is the ability to view the interior prior to presenting an offer, purchasing using conventional financing options and making arrangements with the current occupant to make sure they vacate appropriately.If it's bank owned, then it would not be marketed as a short sale and therefore your offer and contract would be direct with the bank.Cons with bank-owned may include the inability for interior inspections, needing to self-finance or using hard money to close within 30 days and the unknown of dealing with squatters.

I'd start with how much property can you buy (a function of how much $ you have and what type of financing you've arranged to qualify for).  

The key is to embrace uncertainty - and to get more comfortable with its consequences.Of course, if you had the HELOC, the ethical dilemma of whether to proactively disclose that something changed in your living arrangement (and have to repay the HELOC balance) would be another thing to wrestle with.

@Malcolm JarrellI admire the perseverance.This type of arrangement would NOT work for me.  

You can finance however you can arrange for it to happen.

What are common interest and term arrangements with seller financing? 

I arranged to meet them at the house to see if there were any electrical issues, window gaps etc but instead I found x6 LARGE aquariums full of salt water fish. 

These types of properties may also be a lot more work for you, so if you are looking for anything resembling passive, these aren't likely to be that type of investment.

Do anyone see any issues with this arrangement?