(long story, not very interesting read) It's a balloon at sale or maturity of the first loan.Anyway, I plan on recording it in second position.

how do I determine which market to begin my real estate investing strategy - seeking small multi family units with positive cash flow of $100/unit of more

You will, basically, be starting a flip from a negative equity position, and you'll have to dig out of that before you can turn a profit.

If that is the case, you will need to get comfortable in a 2nd lien position (and make sure the first will allow). 

We’re both in college, and while we both have respectable jobs (by college standards) and strong credit, we’re aware that it’ll be very difficult to find hard money loans in our position.

I am in the same position with a Tax Lien lot in rural TN worth less than yours. 

I would simply give notice under your state guidelines, inform tenant and their handler, and let them decide if they are staying or going.

We, as the property management, have a one time late fee that we asses and then if they dont pay by the next month we can go ahead and serve them a 3 day notice to pay and then we have the option to start the eviction process if we feel we need to. 

Keep things the way they are now and with all new tenants.Send out the proper notices allowing yourself sufficient time to replace tenants that for what ever reason choose to move.

This current BRRR will actually profit about $350/mo positive cash flow after all expenses including holdbacks for vacancy, repair, capx, etc.