I'm a contractor and remodeling specialist and have recently been approached by a real estate professional to possibly team up on rehabbing.

It's a 3 bed/2.5 bath colonial with a pretty open layout (considering it was built in 1969) which would have to go one of 2 ways -1) HELOC it and do a total rehab then list and sell for top dollar, pay off HELOC and use proceeds to fund this "joint venture"2) Sell as is, which is def going to be 50 cents or less on the dollar compared sold comps in the neighborhood (anywhere from 300K to 500K) and use proceeds to fund this "join venture"---> I'd love to hear pros and cons to both of those points <---From an investor perspective - what is the best way I should approach this?

Further reading on this topic is in the next link; some threads there already give some approaches to your question:http://www.biggerpockets.com/forums/41/topics/68977-foreclosure-auction-sheriff-sale-and-trustee-sale-faq

Can I approach the seller as someone interested in buying the house, then offer to list it if they don't like my offer?

People are different and not everyone has the same approach.

After seeing it for a planning process, I'm absolutely certain that if I tried to change my zoning from sfr/duplex (the current designation) to a triplex designation, I would have to fight my neighbors tooth and toenail.

I've thought of looking up other properties for rent in town and asking them how long they have vacancies, but am not sure if that is a good approach (too straight-forward?).

Gary West, just another item to consider in your one-at-a-time approach, but markets and interest rates fluctuate, and while Feb 2014 probably won't be that different, waiting several years for each one may hurt your ultimate goal as right now we are still in a record low interest rate environment along with low home prices, but in 5 years, you may be looking at 8% rates or prices too high to justify buying to rent them out.

Add that on to the management fee and you're approaching 20% of your GROSS revenue going away right off the top.

(permits, fees, bringing in utilities, curb, gutter, sidewalk, school fees, design fees, etc.)