Is it legal?

Add in principle payments, taxes, insurance, association dues, vacancies, maintenantce, advertising, tenant screening, legal fees, evictions, tenant damage, etc., etc., and you're in the hole several hundred, maybe even close to a thousand a month on that one property.

So, your division into the different percentages may or may not actually pan out.You've missed some items, like advertising, tenant screening, tenant damage, legal fees, cost for a CPA.

It is listed as a 2 bedroom in all the docs erroneously, I have seen it..it is a legal 3 as far as I can tell.

By definition you are signing away your legal rights.

Mike, if you read the IRS guidelines, you will note how you become classified as a "dealer" and thus how you are taxed differently.

Wheatie,When you refer to the tenant buyer's "claim they have an equitable interest in the property" are you referring to any legal action if the deal goes to pot?

I have seen this idea used in other states, in affect, the seller did not have the legal right to extend financing at the time the note was agreed upon, at least thats how it played out in a deal I saw go through in Arizona.

Is it legal?

If you have a valid contract and he sells it to someone else you would, most likely, have a legal claim against him.