For the drawing up the paperwork, the one option you would have is to essentially be the bank and write up a deed of trust and promissory note and put a lien on the property payable with a due on sale clause or however you structure the payments. 

So spend $70K for rehab, plus how much for down payment, cost of capital & other carrying costs?

Balloon payment on property due on Sept 30, 2017 of $139,022My Rental CashflowGross rents - $1800expenses (less insurance and taxes) - $600NOI = $1200$1,200 - $1,400 = -200 CFWith what the seller is proposing, I will be losing $200/mo in the best case scenario.

Figure your PM at 8- 10%, you will have garbage, lawn/ snow maintenance, water sewer, your taxes, insurance and loan payments. if there is common hallway or outdoor lighting, is it metered separately, if so, you will have that expense as well. 

My biggest obstacle at the moment is coming up with the initial down payment of $125,00.00 for the bank .

I need this amount to put as a down payment on a hotel .

I'm now looking for a quality loan servicing company out here in the Bay Area, or anywhere for that matter, if they can help facilitate my payment process to the seller.

My question was if I could attain an equity line on the newly purchased property if I have no equity in it yet since I did a 3 year interest only with a ballon payment on the backend with no money down.

If the above numbers are correct then my return on the down payment/closing costs is still pretty good. 

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.