If someone wants to borrow money from you, and you want them to use the equity in their home as collateral, then I agree, you can have an attorney draft up the documents and the person who owns the home can sign a deed of trust putting you into a second position on home they own.

If I purchase even at full price the value after repairs is around $125k.I plan to use another rental I have in the same neighborhood (worth $150k) as collateral for the down payment.

@Samuel WhiteYou may be able to access around 80k of that equity with a HELOC, if your parents will sign for you to allow the property to be used as collateral. 

It also allows you to walk away if there's collateral damage but I would say put skin in the game for more leverage by building a 800 FICO with the willingness to cosign along with $0 personal debt instead.

I plan to use another rental I have in the same neighborhood (worth $150k) as collateral for the down payment.

For lenders, you want your money or the collateral.

This is definitely true for me, however, I can't find if Amanda and Matt mention the Real Estate Professional definition as a requirement for that or not.If I can take the deduction, can you send me some collateral I can forward to my CPA? 

Then, if you have a lot of equity in those rentals, instead of looking for a HELOC on individual rentals you can get a business line of credit that using the equity in the properties as collateral for the loan.  

The property would be the collateral in this case.

A few months ago, a thread here at BP caught my attention regarding quick easy and painless HELOC loans using rental properties as collateral available from PenFed Credit Union, often approved without even an appraisal.