But after reading through the forums, I've learned that I'd just have to make sure the seller knows, verbally and in the contract, that I'm acting as the principal.

This has the effect of getting to talk directly to principals and sets you apart from those who do not market. 

Before I made that decision, I was paying extra each month to pay down the principal.  

Where I live I am not able to deduct the principals payments I make on my mortgages, only the interest.

In the five years that you'd have to wait for option 2, you would lose out on principal pay down for sure, rental income and possibly appreciation if your market appreciates.Good luck!

Because of the initial wholesale price discount and the additional equity from rehab I then refinance with a traditional bank with a loan around 60% ltv so that I can then start paying down the principal.

I train in wholesaling but also lease options and subject to and wraparound mortgages Virginia is pretty strict and having a real estate license really does help youI would start a marketing campaign toward houses with good school districts in medium priced housesI like expired listings because they want to sell I would knock on their door and give a free report and then follow upMost expired listings are overpriced because They don't have a lot of equityInstead of an assignment I use an option release because in many states assignments are frowned uponSo here are the steps-Contact the expired listing seller-Show the cost is sell by listing with an agent-Compare that with lease to own in getting your sales price without a sales commission down the roadYou can either act as a principal in the transaction by creating a lease and option with your LLC or sign a listing agreement and charge a fee to facilitate the lease to ownIf you're acting as a principal, you take your option and place a memorandum of option against the property at county recordsOnce you have the house under contract you market for tenant buyers in that area that have 3 to 5% downEither the tenant buyer or the seller or both will pay your option release feeP.m. me if I can help youBest wishesBrian

I have posted all over Linkedin.com but were else can I find principal buyers?  

Im sure the principal one is  - unemployment rate.

There are other web sites to find justifications to do the wrong things in RE, not so much here.Now, a Land Contract doesn't have rent credits, principal amounts are reduced in a note and they are a financing arrangement