So, instead of paying taxes on $50K, I'm paying taxes on only $21K. 

You could also talk to professionals like attorneys or CPAs who might know people interested in lending.

Research contractors better Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

This is relevant for multiple reasons 1) appreciation is where the real wealth is generated in RE 2) real estate has tax advantages over cash flow 3) in CA property tax increase is capped.  

Show up to court on time, have all of your paperwork ready, be polite and professional, stick to the facts. 

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Great point about state income tax, @Jay Hinrichs.

I think a good tax person is worth their cost.  

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

I’m told taxes and insurance is lot and will rise each year and cash flow is hard to come by.