I'm simply seeking the wisdom of people that have faced a similar situation so I can base my offer on the input I receive.

Some folks will use a large heloc to simply purchase cash and then refinance afterwards.

I have a property similar in cashflow to yours simply because I bought it as a primary residence years ago.

Giving your good folks a little recognition goes a long way.I would suggest your friend ID a way he can help his LL simply (like trash mgt- pull out boxes that absolutely fill dumpsters to be recycled, parking lot pick-up, etc) in exchange for a discount.  

If they do not fill an app. out right then and there then you simply will not hear from them again.

Instead, (as you said) you would simply be more likely to attract more people who could just barely afford to rent your place at the lower price point.  

I'm looking for advice on how to best structure the legal side of things - should the money guys simply be hard money lenders to the guy with the home under contract?

You need to be "pre-qualified" financially before making offers, they simply determine what you can qualify for, it is not a loan commitment.

He will almost certainly not opt to cure (the expenses will be rather large).I have been told that, in commercial deals, it is simply a take it or leave it proposition and that price changes are not negotiated after the contract is signed.

Was told it creates problems but I thought they were separate units simply using the same duct work.Would love to know more!