As for me living there I will be paying the 850 as if a tenant was there and it will be going towards the principal on the mortgage so I can refinance out of the Pmi insurance in 3-4 years once my loan reaches 80% ltv.

Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control.If you breach your Mortgage, the lender can call the Note due.Hope that helps!

If you can't find better loan terms then I'd probably put some money towards principal so that the homes are paid off before the balloon kicks in.  

But you are forgetting some of the other ways real estate makes you money.1) Principal paydown.  

@Karen Schimpf, DSCR is calculated as NOI divided by debt payment (principal+interest).

I owned a mortgage company and serviced installment contracts and acted as principal.

There are plenty of different divisions in PE/REITs/HFs such as principals, investment, legal, lending, management, development.

If your intent is to pay her interest only payments until you sell and then pay her the $50,000 principal owed at that time, your interest payments for the 2 years (24 months) would equal $15,000

Furthermore, I had always thought that a "dealer" to real estate is an IRS defined term applied to an individual engaged in the purchase and sale of real estate as a principal party to the transaction conducted in the course of a trade or business.  

Depending on your market on the appreciation level and future rent level.....I would suggest you review the total financial picture which should include: 1) principal pay down annualized 2) depreciation 3) overall tax position with regards to W2 ( if applicable)Hope this helps!