We currently have the house under contract for $305,000 with all closing costs paid.

Depending on the price you paid, you "may" be able to exit the first house keeping the VA mortgage and get a second house using another VA mortgage so long as the sum of the two mortgages don't exceed $417k.

If we are partners on this deal should he not get paid to cut the grass at this property since he will be an equity partner?

If you put the $ towards debt you'll still have debt left over but it will get paid off sooner but if you finish the 3rd unit you'll have $1300 extra per month to work with.  

Lou,I have never done a deal quite like this before, but one thing that comes to mind is that you should define how and in what order things get paid.  

On a purely pre-tax basis my monthly payments to own would be about $5,000 (putting down 20%).

LENDERS won't count your 1st property's mortgage against your income if you have a signed written lease and 6 months verified tenant paid rents.DON'T BUY YOUR dream home now, buy the most rent-able  property: a minimum.                    3 BR 2 BA SINGLE FAMILY HOME ,  bigger if you can afford and a garage is a huge plus.

I spoke with my investor agent who also discussed it with the title company and they said the liens would need to be paid.  

Hey Michael, With foreclosures you need to wait 7 years in order to get a conventional loan (it's a different story if it is a pre-foreclosure, deed in lieu of foreclosure, short sale, bankruptcy, etc).  

All parties were aware of that, meaning they knew I was the buyer and buyer agent who would be paid for my services as the agent.