Ask the tough questions like what happens if you go over budget, the time line, run into problems, who will be managing the project, what will the communication look like-Have regular phone meetings to check on status of rehab and budget (we do weekly now on all of our projects)-Create your own scope of work based on the inspect and then ask the contractor what is missing-Work with multiple contractors-Don't leverage yourself financially so much that you go broke if you go over by 20% or the project runs much longerOverall, this has been such a fun experience for my wife and I to work through. 

Talk to a few before you decide on one.1) I'm not sure what the current eviction status is in your state but you could have it written into the P&S that one unit is delivered vacant. 2) The properties require an offer prior to viewing or a pre-approval letter from the bank?

For example, I had nearly 50 Positive Reviews (nothing less than 4-Stars), as well as what they call Superhost Status (which is another conversation entirely), and that kept my listings on the first page when guests were looking at that market, yet a few bad reviews can put you on the pages that are too far for the average person to scroll to.In short, hospitality is KEY in the STR game.

Shaky loans - Not sure about the status on this one...

Being negative cash flow is not ideal but can be done.Few issues with negative cash flow are A) if the market corrects or drops you are at risk of being underwater B) that no one here has mentioned is higher debt to credit ratio which will make it less likely to scale in the future the more you have these types of properties as banks will find you higher risk.C)  you won’t have the ability to save up for repairs/maintenance/cap ex in future unless you did a realistic assumption in your numbers D) longer time to get to FU money status I personally only buy for cash flow.

But per the OP's question, if he was borrowing against these funds, this would appear to negate the position that they were being held exclusively for the owner on title, as if the OP can borrow against them that appears to refute his previous argument as to their status.

Is your financial status worth being nice?

- know your guy's track record, credit status, etc well before getting involved- always be in first position on the title- have a title search done prior for liens, clouds; use a RE attorney to draw up the paperwork- heed his advice!

My properties are SFRs in Western Pennsylvania and the best of them are reaching for solid C' status. 

They should be able to fill you in w the status of the matter and how you should go about trying to buy it; you may need court approval of the sale.