Rather than seeing it from the point of view that other people's money tied up leaving me with more to invest, I just view it as a huge liability for me to pay them back.

I can't believe he would tie up my property like that!!

Why tie your self down to the higher payment if you don't have to. 

Are you strictly tied to the transaction or do you get involved in the post purchase management of the property?

Your best bang for buck investment is marketing to sellers, tie up a deal, sell to a rehab-er.

Second, if you can get a $400k loan for 4.5% now and buy the house why would you tie up $500k for the 6-12 months the bank will probably require that you hold it before refi and "hope" to get a 400k loan at 4.5% then? 

You may be fine, but if I was in your shoes I would want to know beyond a shadow of a doubt.

I used the rental calculator and realized that I would be tying up my money in something that might only get 6.5% ROI.

Remember when Bundy borrowed 50k from steves bank for 555-shoe?

The price you are tying this thing up is fantastic.