If she doesn't pay the bill refuse her next rent payment and evict her. 

Use a 2nd position heloc to absorb your paycheck, once your paycheck is entirely paying off your heloc, then it is safe to advance $3000 or $5000 extra against your heloc to make a principle payment against your 1st position heloc.

I used 7/1 arm provided by builder. its 5.25 with 30% down payment

Can anyone recommend software which would accept monthly payments (from me to seller) and create proper 1099 forms for tax purposes at year end? 

A “contract to hold” binder payment equal to a month’s rent would also be collected at that time.

You can also send payments to credit card whenever you have spare money.

You could offset your mortgage payment on a bigger house with the cash flow from the rental. 

I don't like paying interest on my down payment unless I know it's a temporary aid to get a good opportunity.

They also want a priority lien on the property.It sounds like you are looking for someone to fund your down payment, I would be looking for an equity partner over debt as nobody likes to lend money in insecure positions, especially when a borrower lacks skin in the game.How much are you planning to come in with yourself?

I had a chat with them on the phone as i was curious about the funding.. but came to the conclusion that the down payment ( the client made to buy) was probably what they paid for the property and the seller carry back note was the profit.. and then the seller carry back note is sold to yet another investor.. who is investing for coupon money.