Most hard money Lenders can't give you final approval without the property because they do an analysis to determine what their risk is. 

For example, you might agree to a 70/30 or 60/40 split, depending on his level of involvement.

The Homeowners Insurance will include Builder's Risk.

Whether it's considered an arm's length transaction is debatable, but it's not illegal.Move forward with the sale and ensure full transparency with all involved parties, including your CPA.

I will say anyone offering this should be giving you all the pros and risks of the flint marketplace.

@Geoff Engel If you don't want to be a landlord but still want to be involved with investing you could be a private money lender for flips or in partnerships and bring the money to the deal.

You should also verify whether the lease agreement allows for ownership transfer without landowner approval.Owning the trailer means assuming responsibility for lot rent, potential removal costs, and liability risks.

I say this because every investment is an opportunity cost, and if you're going to take money out of stocks (whether in a brokerage account or 401k) that could be earning 8-10%, you should have confidence that your acquisitions are going to perform better to account for the additional risk. 

The problem now is that if you're looking to do a cash out re-fi (e.g. as part of a BRRRR strategy involving the development of ADU's), there typically are no comps for an SFR + ADU + JADU, so an appraiser makes adjustments to SFR comps and gives very little value to the ADU's. 

You can mitigate risk along the way.