We are trying to get all the facts and forms correct with this process, while abiding by Illinois state laws.

Finally, Will is correct, it is a JOB, and treating it differently will most likely result in failure.

Yes Matt, you're correct.

Correct?

My instincts on my first two tenants based on conversation alone was correct, but I still get an application to verify past residences and work history.

(correct me if wrong).  

To add to what Karen correctly mentions, there are many new Federal laws, including those created by the Dodd Frank and S.A.F.E.You will not sleep at night once you begin to realize all the pitfalls, rules, and regulations.

It is not correct in Texas or Colorado.

And if not, what's a good education tool for me and my friend (besides BP of course)?

Owner finance (similar to contract for deed if that is legal in your state) is a good way to get out of your situation, with the possibility of making some money on the deal.Ask for at least 10% down and figure out what interest rate you would like to charge (depends upon their credit, I suggest nothing less than 8% even with impeccable credit.)You can use a mortgage loan calculator online to get the amortization table, and there are companies out there that will 3rd party service the loan and report to the credit bureaus for you.I suggest finding a real estate attorney in your area that has done these to structure it correctly for you.