This is not a good start, and partnerships often get worse over the course of a project.If you do proceed with this partnership, you and the partner should sit down and WRITE DOWN how you are going to do this project and what will happen in various circumstances.  

And my other question is, under what circumstances would this deal make sense?

Health insurance premiums can potentially be deductible, depending on specific facts and circumstances.

Under that circumstance it would not be eligible for the 2 of 5 homestead. 

@John Thedford  if I was a betting man I would bet they don't own them  they are claiming a equitable interest simply because they have them under contract.now I get the occasional assignment.. but when your whole business model or scheme is to simply go into contract then take assignment fee's that is were the distinction lies.. 

IRR used this way, which is very common in PE funds, is not very favorable to you in this circumstance since you are putting up about half the capital.

The important distinction is that the 1st buyer (probably you) comes to the closing with all the money for the first purchase (closing).

Those distinctions really are based on more opinion that fact. 

Under no circumstances should you accept the building with that tenant in place. 

But all of this verbiage is going to be depending on your local Landlord/Tenant laws (again).So in this circumstance I would encourage you setting up a meeting with a local RE attorney to discuss the situation and how you will want to protect yourself in the lease.