Using the conservative low sale price of $500K this would net me about $170K to use as a down payment on something much larger in a more up and coming area.

I'm working on a deal where I would purchase a re-performing note (10 payments on time after workout, so far) at around 50% of UPB. 

You'll probably need to go with a low down payment program like FHA. 

You can't get a low down payment mortgage on this condo" is code for "something is a mess" just like "the seller will not allow the buyer to hire a home inspector to inspect the home" is code for "something is a mess." 

Worth approximately $110k.The monthly payment is maxing us out but working a 2nd job to save up $$ for the rental property, but that's going to take approximately 1-2 years before i can save up enough for down payment + rehab costs.  

I'm paying 365 a month in the car payment. 

If he fails to pay, apply his rent payment towards the unpaid repair and then he will be short on rent, which is cause for eviction. 

I don’t have their phone numbers, just their names. 3 days ago I put a paper notice on their door stating ownership of the property has changed, they are late on their rent and please call this number to submit payment immediately.

In addition to your note, with specific payment terms, you need an executed and recorded 2nd mtg/deed of trust.

Once it’s burned as a down payment it’s a lot harder to accumulate more.