You refer to yourself as a "REI Mentor" and you freely offer your mentorship to new investors, but it might be wise to stop short of taking another investor's cash for a project that you are taking the lead on until you have more experience - You have said that you are not a professional flipper, but the primary problems you faced were not specific to flipping.  

It is pretty short.

Intent is short-to-mid term investment for him, and getting into new primary residence for us (where we otherwise couldn't w/mortgage at this time). 

We renovate to "luxury workforce", add the nicer amenities and get a premium tenant as well.

We’ll be moving in shortly but first want to renovate the unit we’ll be living in.

Financially, it's helped big time, both short and long term.  

The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."

probably needs to be a short sale.

If the property is truly worth $36.5k, just sell it, pay off the high interest loan, pay Uncle Sam short term cap gains, and you may even have some cash left over which would be a huge win.

And this was no short sale or foreclosure either.