At $500/pop that can get expensive.I have done videos in the past showing that investing in a fund collecting interest only and leaving your principal in the fund pays significantly more over time - but with a note you could get a payoff (which if bought for discount is great).

ITI is the interest, taxes and insurance versus principal taxes and insurance.

I am considering posing this as a zero interest deal, so the $72,000 ($2,000 x 36 months) paid in the 3 years leading up to the balloon would go straight into the principal, and so will the $17,500 down payment.

Most note investors originate new notes or purchase existing notes (sometimes at a discount to principal)..  

We’d rather take low double digits passive with lower risk over 25-35% active with the risk of principal loss.

You will then have a few options with that rent money....you can put it into principal or you can start saving it to purchase yet another property.

Question on the ARM, is there a negative to making extra payments to the principal?

Your goal is to build equity, which can be done through several ways (cash flow, appreciation, principal paydown, tax shielding, etc).

All that is due is your principal balance.

On principal, I am against "generational wealth".