How did it go, OP?

Where it could be a problem is if the deal takes a long time and does not have much profit - it might be a case where the interest expense would wipe out the profits for the OP. 

That all said, I think the piece that is missing here, is the OP is trying to claim the Seller carry back AS THE down payment.  

Not specific advice for OP but how many mistakes can we count in this experience?

I was initially leaning towards renting out 1 side and living in the other, however now I am beginning to think I should start small and invest and build up equity in a 2 BR Co-op or Condo and possibly acquire 2 of these in the near future instead?

I would take it but no balloon just fixed rate for fixed term There are not many private lenders (or vendor's carrying) who are going to give you a fixed term longer than 5-years; a few like the OP's vendor offering up to 10-years.  

Gross Rent minus:Principle and InterestTaxesSewer and WaterTrashHeat/UtilitiesHOACap Ex and Ops (my personal minimum is $150/roof/month)InsuranceMgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)Vacancy- as a %. (8% represents 1 vacant month/unit/year)

Having my avatar back, I'm in a good mood this morning thanks to @Karen Margrave I'll be polite in saying, trying to act like a Realtor as suggested by the OP is probably going to get you nailed by your state RE Commission trying to use a form fee agreement in closing.

I believe the OP was attracted to the idea of buying something of value on the cheap from another state. 

As far as 3% down, I haven't seen that with any bank on an investment property unless you are doing what the OP is doing and getting a multifamily and living in one unit.