So, the lawyer who I used to draw up the contract and close, said the lender has to let the owner pay down the principle sooner, if the owner wishes.

I don't like to dink around with the draw process 1. and 5.5 Is a local community bank and these are full blown construction loans..

The answer is: NO.Back to the drawing board.

-Draw up a Purchase and Sale Agreement (what are some contingencies I should include?)

I suggest drawing up a lease between you and your friend.It's really easy and having documentation for you rental income won't make anyone LESS likely to lend to you.Just make sure your lease specifies what is being leased because if it could be misunderstood as renting the entire home, that could work against the FHA guidelines. 

There are not that many new builds in that range so you, literally, could look at each one and draw a conclusion.

My clients are very professional in their scope of work and have a specification of their materials, what brand, color, even how to install it, if a client hands me that, then I would have to say I could bid on the job, but if he walks and talks what his thoughts are, no drawings, no scope list, no material finish list, it would never be an apples to apples.

Our criteria needs/wants is <$2300 rent not including utilities, 900+ sqft, 2BR, on-site laundry, 1 off-street parking spot (2 preferably), kitchen for someone who cooks a lot and somewhere that doesn't have a ton of noise pollution like next to a heavily traveled road, train line, or the place shaking because a passing airplane, train or flushing of the neighbors toilet.

I am a dual Australian/British national, and I have networks of friends and relatives in both London, and around Australia that I could draw on.

If you do then start saving that cash flow along with other capital (work) and I presume you'll have another in no time and if need be you can always draw from equity in future