But at the same time not running a charity.

Absolutely not.According to Heather and Brandon Turner's book, the fact that they want to put so much money up front means they are trying to distract you from something else they don't want you to see, and hope that offering you enough money will accomplish that.

I am also running into this issue.

Now, we do live in a small town, touristy area that does lack in nicer/unique short-term rentals. 

How would you structure a deal so that the private money could cover the down payment and fund the rehab in order to minimize money out of your pocket and being able to pay the private lender off when you refinance? 

I think money can still be made however, I wouldn't be willing to invest there currently.

I know that myself, as a buyer, if I cannot walk the property then I am either going to pass or offer far less money to account for what it is I may not be able to see.

And ideally sell it 4 years later.If I can more or less count on the renting of additional bedrooms to cover the running costs of the house, I'm really only looking at taking a hit on the buying/selling costs - which SHOULD be lower than what it would cost to house him in dorms for 4 years.I feel like this is pretty obvious and easy (not trying to make significant money here, just thinking I could save $10-$20k on housing costs over 4 years).

The discount may not be obviously apparent, or may require some work to realize, but that is where the money is made. 

It’s more of a benefit to the tenants than a money maker.