@Fred Huynh - Since your original post is 5 months old, I'm not sure if you went ahead with this so I'm curious like @Jonathan Schwartz and @Jason May. 

I was pressed to go ahead, since it was the tail ending of July.

Is it recommended we setup an LLC first, or is it ok to move ahead to sell the existing property in his name and purchase the new properties in the newly formed LLCs (all assuming that we will purchase our of CA)?

If everyone likes it, I get my contractor to walk it and give me an SOW, then I'll throw it to a lender to make sure their numbers line up with mine.I HIGHLY recommend the BP calculators, they are the most straight forward and best I've seen.

I've used them before and everything is pretty straight forward.

@Eamonn McElroy let's get a few things straight here. 

I got a lot of work ahead of me since in order to figure out ARV I also have to figure out market rents (this property ranges from 3 bedroom unit to a studio. 

Go ahead and snag it.

I genuinely hope I am missing something in the details as I'd love for this story to have a happy ending but based on what I know so far, it's not there.I don't even want to address the HELOC in any detail at this point because we would be getting way ahead of ourselves but that would only increase the negative cash flow as you would be taking on more debt, which would increase the monthly cost of your mortgage and if your family member isn't able to pick up the increase, you will be paying for the difference. 

Thank you for the tips, I will definitely try to get as much done ahead of time as I can.