Asking Price: $159,500 (=$31,900 @20% downpayment)Total Rent/mo (est. according to Craigslist and Rentometer): $2,000--Principal + Interest (@20% down, 20yr fixed, 3.54%) = $743/moProperty Tax = $213/moInsurance = $45/moVacancy+Maintenance+Management (I'm guessing 25% of rent) = $500Total Expenses = $1501--Cap Rate = (2,000rent - $500vmm) x 12mo / $159,500 = 11.3%CoC = (2,000rent - $1501expenses) x 12mo / $31,900 = 18.8%So, how am I doing?

The principal can be in a secure, real asset, and produce reliable steady income.  

We have enough patience to wait out the foreclosure process -- once the sheriff sale happened the owner would only have 90 days to redeem due to the state statute which determines the length of redemption based on how much principal has been paid off -- the owner would get the min amount of time.

That is a very very high return on your investment.As to why your payments are not decreasing the principal, that does not make sense to me.  

This is the summaryRental income last year : 24KDepreciation = 6500 (175K non land value , 27.5 yrs Straight line depreciation)Insurance = 1100HOA = 1300taxes 3170Mortgage interest = 4300 (just checked the statements , paying about 350$ interest, 1050$ principal and 325$ escrow).

The penalty for non compliance can be as servere as losing the property backing your note, loss of 3 years principal and interest, or anything else a judge decides to punish with.  

Or is a home equity loan/private money the only way to go if the loan principal is too low for a conventional?  

Rural areas offer advantages and challenges but the principals are the same.

You are taxed on the income, part of that pays principal from the loan, and part of that goes into your pocket.

I believe that I will do a owner-occupy for the moment to help accelerate lowering overall principal and personal debt.