This is a huge expansion of what this legislation has traditionally called for.

This is how you establish fair market value.Options: if you don't want to accept fair market value, reject their proposal and go back on the market.

Could legislation come down the pipeline that makes OOS investors have a harder time? 

What we are seeing here in Massachusetts is consistent efforts to pass legislation like 2% real estate transfer tax, tenants right of first refusal, some sort of rent control, a form of eviction moratoria etc.

It's interesting how investors are basing the prices they will pay for properties on STR rental rates instead of LTR rates.With the changing legislative and tax situations for STRs, there are bound to be some that experience big losses with this strategy.May be prudent to buy deals based upon prices that break-even with LTR rates and recognize STR income as a "bonus" for as long as it lasts.

He showed me the survey of the lot and I proposed to him to build a SFR on it.

In your hypothetical scenario, no, the lender doesn't see that the partner is listed on the deed (only) of the property you own, nor does the lender see which properties you own when you're being proposed to be on the deed only.

@Kyle Gendron Great point about Albany being the capital - legislators come from around the state with their aids who often need an inexpensive place to stay. 

You can utilize the equity in the rental as a cash out refi and some lenders will allow you to qualify for both the refi and purchase utilizing just the rental income or proposed rental income schedule without additional supporting documentation.

Her proposal was that she puts all the money down for acquisition and rehab costs and at the end we split profits 60/40.