Yes you do have to pay PMI when you do this but once you hit 20% equity you can get it removed if you buy with a Conventional loan as opposed to an FHA loan.

The work around is part of the application process is to tour the property, but still, why put yourself in that position?

Every investor is expecting day 1 positive cashflow.2.

@Shawn Questa I agree with you that there could be some opportunity here, but personally, with that little equity in the property, I'd wait for the pre-foreclosure process to start and  perhaps you can do a short sale (though I don't know the details on how that's handled in TX).

My suggestion if your goal is to free up some equity to use for another purchase - start small with the single family home with a cash out refinance.

@Carl RowlesI recommend a HELOC or Heloan on your primary residence or the rental if you have enough equity in either.

It is a positive working relationship.

Those positions are hard to come by but if you can find one and get your green card, you're set! 

You can decline them off their credit, background and for not having 2 past positive references.

You really have a great position here.If your private money runs out or runs tight, then you can explore other funding options like hard money.