., so you would recommend doing strictly buy & hold instead?

As a strictly rental, the bottom-line $74/mo CF looks risky to me, especially since you aren't including the monthly payment cost of the borrowed rehab, which should be covered by the rental income.If your girlfriend will be the owner occupant, flipping after that might make more sense rather than refinancing, as she would get the capital gains tax exclusion at sale. 

If you manage your own property (I'm assuming you would), you can drive a higher return, but most info I've come across recommends that you factor it in as an expense to really judge the deal strictly as an investor.  

Essentially, you're just looking for a partner to provide money, which could be paid strictly on an interest basis.

I was purposely slow on getting started to ensure I have my strict purchase criteria in place, as well as process streamline the business and fully understand the need for the due diligence on a purchase to avoid situations like what you experienced.

I would always look through the lens that you are purchasing through the lens as strictly an investment (non-owner occupied) as anything else will muddy your analysis. 

But To my understanding, banks are strict about source of incomes and we want to do this the legal way.

The OP had stated the seller did not sign an agreement so it was strictly a verbal discussion between them.

I'm currently building a strict screening method to help weed out the bad tenants and an easy why for tenants to send me money.

Capital expenditures should not be confused with your routine maintenance / repair cost but rather an expense simply related to things wearing out and needed replacement.