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.

My current interest is in landlord paperwork, screening and legal knowledge to rent hack the extra room.

They're getting all appliances, an extra fridge, and a huge patio add on and the best lawn in the neighborhood.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it.We have a 12 page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord.

I expect to cash-out refinance by the end of this year with at least $120k+ taken out to pay off remodel expenses and put the extra amount into another property.

It's not hard like rocket science, brain surgery, or other things that require an enormous intellect in addition to the hard work.