Recent ordinanced were passed that made it difficult to get such a license IF you're not using the main property as your primary residence. 

Perhaps the owner would carry the $125,000 and bank would allow him to be in second position.

No, lenders will want their position secured and with no equity there is no place to be secured. 

It is my primary residence.

., we both win as I get a new house with a cherry tenant, and they get the equity position and the beautiful home.  

I am currently reside in the DC/MD/VA triumvirate area and just bought my primary residence 2 years ago.

Say I want to partner with someone to buy a multi for $400k and after all expenses there's $800 pm positive cash flow.  

Personally I would take the position that the full redemption payment (i.e., 120%) are the gross proceeds and the basis is whatever you paid for the tax deed, making the 20% profit a capital gain.  

They will or should be 1st lien position.

My predicament comes from the situation of living in one of if not the most overpriced real estate markets in the world right now.My goal in joining this forum and building relationships with the people on this site is to navigate this difficult real estate market in order to advance my financial situation to better the life of my family.I understand allot to starting in this game is taking action and not sitting back on the fence but I find myself in an area that doesn't allow for an ideal return on equity as far as real estate investing for flipping/renting for positive cashflow.I look forward to having productive conversations with the fine people here on biggerpockets forum in hopes of helping other people succeed while succeeding myself in the ever changing world of real estate.Cheers,Matt Bouwman