I did contact her to see if she would be interested in private financing for a higher amount (was thinking I could do as has been suggested here, then logged i today and saw that almost exactly the same thing was posted as a possible solution, so im waiting for her reply.

Your suggestion to stress test makes perfect sense. 

@Dennis Villamor -My suggestion would be to hone in on 2-3 neighborhoods in the region that interest you and start checking out what is available.

I live in Bay Area and nothing around here comes even close to suggested buying formulas. 2% 50% etc.

Love @Mike Dittman 's suggestion. 

The suggestion given to you earlier about joining a local REIA meeting, group, club I would highly recommend because there you will meet other investors who can help you along with contractors and others.

However, I'm not able to find anything that would suggest this is illegal.

Any suggestions on how to negotiate owner financing rather than typical 20% down and 30 year mortgage?

I would suggest looking outside of OC into San Bernardino County or riverside county if you want to get over a 5% cap rate.

Any suggestions?