You still keep the principle and appreciation.

You would want to calculate an appropriate amount of appreciation, and then calculate your "principle pay down" from the mortgage being paid.  

We've recently been contributing a portion of our monthly payments to now paying the principle so it's come down a few thousand dollars from the starting 62.5K to 60K balance.

I have a possible distressed homeowner in my sights but not sure, ethically, how to go about it.

It was a sight unseen purchase, as I live in Belize CA.

@Jay Smith The debt service ratio loan works if: the property rents cover and cash flow a bit after principle interest taxes insurance and any HOA; you have a good middle FICO score; and your total mortgage/car/credit/student loan monthly payments are covered with cash reserves in checking/savings and a portion of 401k or stocks.

You need to add principle paydown to your income and not subtract your mortgage payment. 

Two, this same principle applies to real estate agents as well.

I now have it under contract for $500k but am wondering if I’m being short sighted and the should hold onto it even longer.

My crew is looking at starting mid-October, however other contractors can be on sight as earlier as 2 weeks after receiving first payment.