Reason for this is so the person not on the mortgage and title can take advantage of the first time home buyer benefits in the future.

I need to determine whether or not moving faster (by pulling from the 401k) offers greater benefits than patience and continuing to simply save the money needed for the initial investment.

REI has the benefit of Leverage (no margin calls, as long as you lock in your Debt) and Tax Avoidance.

Do not discount the benefit of appreciation. 

Go preach your benefits analysis to those people.Smart investors know the value of a home based on comps from the local MLS.

My main concern here is structuring the vendor takeback in a fashion that benefits both parties in order to make the deal happen.

I guess 401k's the only benefit of a 401k is it's tax benefit and I'm making an instant 100% ROI with the match... but the issue I have is that my money is tied up for the next 40ish years (I'm 28). 

Just the appreciation, mortgage pay down, and the tax benefits should offset any downturn in the market if that should occur.

I gave them the benefit of the doubt considering the pandemic and trying to find a good tenant who isn't trying to take advantage of the renter moratorium.

Typically, they expect to see a lower cost of living while they're living there and are okay with that knowing they will reap the benefits of learning how to manage their rental, screen tenants, and will see equity and appreciation and hopefully, a decent amount of cash flow after they move on to their next house hack.