C can come with higher cash flow for certain periods but it can also come with increased risk & potential downside loss.

I am a big fan of this "value add" investing strategy, but everyone has a different risk profile. 

The theory was this would limit risk and lead to higher quality, longer term tenants that would be less likely to give me headaches. 

I would only do business with folks who carry high limit E&O and who guarantee that their work can be relied upon for the purpose it was obtained. 

Or he could pimp women out of it.Every tenant carries risks, even the perfect tenant.

I also want to to start investing with my brother and father we are about to close on our first deal. we figured between the 3 of us we can save up for down payments faster and spread the risk as well.

Sorry, I should say:If your friend is highly risk-averse, or doesn't qualify for financing, then this isn't going to work.

I understand the inherent risks of being a subordinate lien on a property, but that's not my question or concern in this thread.

Youll want to mitigate your risk as much as possible before going into a deal. 

Whether its rented or not makes no difference in the LTV, its only needed if you cant qualify with carrying the full mortgage payment on your own.