One option rather than doing that could be Subject To - in which you buy the house for $184K subject to the existing mortgage.

Land acquisition, entitlement and zoning, permitting and site plan, construction budgeting, and then at that point, we do the last piece which is cost of financing.

Hi, I am a newbie investor who is playing the slow game in buying a primary, rehabbing, then turning into a rental or selling every 2 years.

The buyer was informed from the beginning about the lis pendens. 

My question is what is the suggested approach for renting a unit out of the home and living in the other?

This deal would be $275,000 with the owner holding 80% of the loan for 5 years.  

If the fee is contingent upon a closing/sale, yes.

This is my issue, there is a part of the wholesaling process that is not clear to me, it's the process or steps after the property is under contract with the seller and before you get to the closing.

The $40k number may have to do with something else!

All the best on your investing journey!