However, the demand for small (3-4 unit) multifamily of DECENT QUALITY far exceeds supply.

Haven’t looked into Fredericksburg much but what’s the multi family supply like there?

The US added 20% more available dollars in 2020 and that money has to go somewhere.https://www.cnbc.com/2020/08/05/the-ballooning-money-supply-may-be-the-key-to-unlocking-inflation-in-the-us.htmlRelated question...

The supply here is super low though!

Would 60/40 or 70/30 be more fair until they can supply 30% of the property purchase so we're sharing some more risk?

I suspect, like most things, supply and demand has some impact.

I am also planning to have my maintenance guy that is updating the other unit with me to go down to the basement and take a look at the water meter and get a list of supplies needed to split it.  

You want to be following the instructions on what docs to supply to the letter - for example if they need a bank statement they may want all the pages, not just the useful pages - so even the last blank page of your bank statement that actually says, "This page intentionally left blank." 

It just seems like they keep thinking I'm talking about a Legal Trust and want me to supply the Trust Certificate, but that is not what this is. 

We can only hope that Austin finally completes its rewrite of the outdated Land Development Code in 2021 and that serious efforts are made to address the supply side of the housing market equation.