I'm considering turning it into a separate apartment and would really appreciate any suggestions or advice on how to make that happen.Lastly, I have been researching HELOCs for possible use as a downpayment for a separate multi-family home.

I am almost ready to put in an offer for my first STR in Big Bear.

Notice in an offering something might say (preferred returns).

I have a nice down payment as was gonna offer a potential subject to if i paid their profits/ closing costs...but can you subject to a loan not in bad standing/ FHA?

All the book examples out there seem to only point to making cash offers on deals found this way.I realize that if it's too distressed, a bank won't lend on it and other financing will be necessary (hard money, partnership, private lenders, etc).

I suggest you let the settlement agent know about the letter and submit a claim to your title insurer using the procedure listed in your policy. 

@Tom Gimer  Yes, held in personal name.Your suggestion is exactly the kind of tip I am looking for. 

Conventional financing will offer the most competitive rates but can be more income restrictive and can be unscalable as investor portfolio expand.

You'll want to get prequalified and know exactly what you can afford because the market is super competitive and you'll need to be ready to make offers quickly once you find something you like.

We had initially presented them with a 6 month lease, and after hearing they would like to move we offered a 3 month lease which again they refused to sign.