Be very conservative on your ARV (final sale could be 10%-15% below your asking), don't forget to factor in construction overruns and discovery work (typically budget a 15% cushion), don't forget to budget acquisition costs (6%-10% of purchase price), selling costs (6%-10% of ARV) and holding costs (be conservative it will almost always take longer than you think or than your contractor tells you and may take more time than anticipated to sell and for buyers to secure funding).  

Go for it, as long as you can secure funding to pay it back before it is treated as an early distribution.

Hi @Lori Beard,I work with a Turnkey Provider and, from our experience, the two best ways to secure your investment is by purchasing a property from a company that only manages properties they have personally repaired.

This could be in the form of offering to pay the security deposit on their new rental as well as their moving costs.Gail

Most rentals with higher perceived risk can be offset by requiring an excess security deposit and/or a third-party guarantor for the lease, and/or prepayment of rent. 

Ask them how much their rent and security deposit is.  

@Mathew Gunkel, I know it's emotionally logical to put your primary up for extra risk as a last resort, rather than first cab off the rank, BUT, that's why the PURPOSE for the loan should be really carefully considered in the first place.In case I came across as someone who knows what they are talking about, I don't actually know the HELOC rules/interest that Lenders have regarding using your primary as security vs your investment.

Should I get a secured or unsecured?

I hope it's not too late to invoke the partner aspect, it allows you to be a lot more demanding in terms of your due diligence, and it allows you to not be the bad guy if you have to turn them down ("I wish I could have helped you but my partner said no and we can't invest any of our money unless we both approve the investment").To your original question, IF you decided to make a loan like this, I would see three options:Unsecured personal loan (weakest/worst/don't do it option)Secured loan - they buy property and you are the lender secured by a mortgage on property (better)Rent-to-own - you buy property and they rent from you with an option to buy (questionable esp w/ family, may be tricky or illegal depending on how structured, etc. and see next point re: owner-occupied)However another aspect is that since this would be an owner-occupied property, there are a ton of consumer protection laws (Dodd-Frank) that apply.

Why not base the security deposit on the actual condition of the apartment?