In other words, is it a good idea to rent out the extra rooms in my house in order to help pay off my mortgage or is it better to invest in a duplex, triplex, etc.?

I’ve always assume the 70% was a safety margin, appraiser having a different opinion, being able to pull out some extra cash to have a profit, whatever...

So, now the 3 family pays both mortgages with some extra cash flow.

And am *likely comfortable waiting another year to buy so I can build up a down payment (and) extra savings.

What you read was  most-likely written by someone full of b.s..While there are sometimes some 'lease-option' deals there are probably more of those deals that went bad than were successful.There is a enormous number of things that go wrong with lease-option deals because even though you have a written and signed contract the contract is not worth the paper it is written on when the seller decides he (or she) no longer wants to sell you the property. 

I think the best way would be to get a loan on the property with minimal money down, hopefully leaving you with some extra.  

I'm assuming the current owner has no debt (100% equity), which would man that 7% would be an enormous profit.Also, if this is 100% equity, this isn't a loan you are getting, which means the seller retains title until the entire amount is paid off.This sounds like the seller has you by your lower tonsils.  

Is it a really big nice house that we spent quite a long time making extra nice.

Owner finance usually will not have PMI/MIP which is an extra fee on your monthly payment that is charged if you do less than 20% down.

While many people brag about the high returns they make the business comes with many inherent risks and it requires 27/7 work, worries, management and extra high management costs that long-term rentals and multi-unit properties don't have.With $125k to invest I would definitely invest in no less than a 4-plex where your profits are almost exponential when you increase rents and the rent increases result in both higher profits and an instantly higher re-sale value for the property.