Most people/companies will pay them off at this point, just to stop running up attorney fees.

Any realtor that understands what your goals are, stops and says, "why place low offers like this for this person to sell off when I can just make offers for myself to sell?"  

I was kind of thinking to use this 5k to invest in our first house hack SFH  that needs some work (get a max up to say 75k max which would give us about 5% down or 10% if we could get a 50k house) and borrow the rest through either FHA or an 80-10-10 loan depending on the price of the house. 

What stopping you from that tapping the equity you have in your current place, or reinvesting the cash flows from your other properties into a new venture?

I'll just hang on to her until she stops paying rent.

If it has not yet gone to the sheriff's sale (trustee sale, etc.) then its still owned by the borrower. 

I borrowed 20% for the down payment from a family member at 5% for 5 years.

Things are perhaps different on your side of the 49th, but why would borrowing money to "invest" in private loans be any different (from a tax perspective) than borrowing to "invest" in any other {legal} vehicle (stocks, bonds, real estate)?

I have: The ability to borrow money (I have a good full time job), I have access to systems to evaluate properties and their ARV, repair costs, etc.

I have: The ability to borrow money (I have a good full time job), I have access to systems to evaluate properties and their ARV, repair costs, etc.