I have seen more people torch their retirement plan using this "strategy" than I care to think about.As @Chris Seveney notes, an IRA can be setup with a specialty self-directed custodian so the IRA can be invested in non-traditional assets like real estate. 

Unfortunately, this means that I have to let this deal go, but it made me come up with a couple of questions about this situation:Does anyone have experience in partnerships where one partner's only real requirement is to sit on the loan and potentially provide interest payments when needed during the duration of the construction? 

What is commonly known as DSCR Loans are loans from private lenders, not typically banks, and these loans are part of the "Non-QM" umbrella and turned into mortgage-backed securities, not typically held on a bank's balance sheet.Here are some articles published on BP that should help!

Can I use it as colleterial for a loan to add to the down payment amount for a new prospective investment property.

The idea is to offset my mortgage payments by renting out individual rooms.

You did not mention any payment issues, have you been collecting mechanics liens with each payment installment?

Okay, I am going to try and make this non convoluted.

I was fortunate enough to receive a gift of equity on this property to cover the down payment and my mortgage is around 168k.

Even if the borrower doesn't have the best credit, as long as the property has good cash flow and down payment, they'll fund it.  

So like an employee would get a W2 that summarizes their income and taxes taken out, a 1099 is a statement of income, but typically with NO taxes taken out - just a straight payment amount.