As lenders, well issue a prequal/preapproval letter if we've analyzed your income, assets (bank and brokerage statements to establish that you have the liquidity to afford the down payment, closing costs, and reserves), review credit of the guarantors, review the relevant experience to ensure that we're not throwing our money away on newbies that are wandering around in the dark, and have put together a reasonable plan of attack for the project.

Take the larger down payment and put it into something bigger, which lowers your %equity in the property but still keeps the $equity and the cash flow is now going into the larger property.

You can sell on financial method because there is such short demand there is all but no comp's to use for comp method, and if selling as turn-key, yup, financial method will be your friend for sure. 

How quickly are you able to save for a down payment?

Believing there is less risk because you are investing a small amount of money (in this case using only a 5% down payment) is the second biggest mistake you are making behind purchasing this asset property in the first place. 

     * House is a 2699 sq/ft Single Family Residence| 3 beds, 3 bathroom | Built in 1956 | NO HOA     * There is a chance I could pay only interests so I can start saving some cash for the incoming maintenance and annual payment equivalent to the 12 monthly payments (~$5,029.77 per year during the balloon period)The advantages I can identify in this deal for me are:* Lower interest compared with traditional loans* Lower down payment compared with the ones compared for traditional loans* House is technically ready to be rented (waiting for the inspection) * Forecast - 3 yr growth (appreciation) is expected to be 8.1 % (Bigger Pockets)The disadvantages I can identify: * I am still vulnerable to foreclosure if sellers don't make mortgage payments to the bank.* Refinancing issues at the end of the Balloon Payment?

This would lower your down payment requirements, lower your interest rate, lower your property taxes, and MAY make you exempt from state income tax.

If a single partner pays the mortgage personally, the payment must be treated as a contribution to the partnership, as specified in the partnership agreement.

@Nate Jenks - @Andrew Postell did a great job clarifying the big challenge you'd run into pulling cash out with such a low down payment. 

The straightforward method is to do everything yourself, as in my example above.