Alternatively, you could try to find a property on seller finance and work out terms that benefit both you and the seller.

Let me if you are financing.We finance up to 8 units residential. 

Lenders are open to doing business with a new investor if:The deal is the right deal:  Not to expensive, accurate numbers, strong ARV, good market....And...Borrower has good credit and ample cash to close.I've lined up financing for about 10 new investors last year. 

Or am I looking at this all wrong and would be better to just to find a hard money lender to finance this?

I used Veteran United Home Loans for financing and they assisted with finding me a realtor who worked with US Veterans.

@Greg Strunak this is the financing forum. 

I brought up the idea of owner financing and he seemed open to the idea.

Best strategy is to look into rougher neighborhoods, get creative with financing or find off-markets. 

If we do a HELOC to finance the rehab, is that appreciation determined by the difference in the sale price versus what the appraisal for the HELOC was?

the house went up for auction and no one purchased it How did you finance this deal?