@Nick CausaThe key principal of a self-directed IRA or 401(k) is a means to diversify your tax-sheltered retirement savings. 

I offered to buy it for 18k, a 5k downpayment and $400 month principal only payments and she took it.

Only thing though U want to do this through title at least pay for a title report when you do a deed in Lu your taking title subject to all things on it.. and there could be junior liens or loans to you.. that if you carry through with the foreclosure they are extinguished.. so do check first.then if that's clear make a deal with the first.. your either going to end up owning it.. or maybe the greater fool theory will play out and someone bids it at the sale and makes you whole.. or you can lower your opening bid to make it enticing. you don't have to start your bid at 1oo % of what your owed.. during the crash I did this often I knew at 100% of what I was owed I would end up owning it.. and having to deal with it.. but if I lowered my opening bid to just get my principal back many times it sold a the sale. and I did not have to deal with it past that..

I agree with most comments above, it is very likely you will have the property in your possession again in a few years, the other issue is, lets say you apply $200/mo of the rent to principal, because the tenant is "renting to own" Fannie Mae, Freddie Mac and FHA do not recognize the additional rent paid to principal for down payment, because they lend on the purchase price, and no matter how you word it, they will not accept $10 or $20K as Down payment for the loan if it was paid to you over time. also if you need to remove them from the property it is possible a judge may see the principal payment as equitable interest in the property, there are many hag ups in this strategy. 

I'm currently in the middle of getting my Real Estate Agent license and hope to have it done by end of year.i was studying my Law of Contracts material and i came across the rule (537.11) that states that agents must use TREC promulgated forms in a transaction unless the license holder (me) is acting SOLELY as principal or the principal (client) requires use of another contract and/or one prepared by an attorney.  

Having everything together in one place will help you see the overall health of your business plus these are related to each other, for example, your mortgage payment consists of interest (P&L item) and principal (liability) so you don't want to track the interest only on one software and the principal on another.

I also like the idea of a longer mortgage term because it shields you from interest rate and inflation risk for a longer time, and of course you can always pay down your principal faster if you'd like, so I'd look for a 30-yr fixed.  

I have the property rented out and the rental payments have been paying off the principal.

With 25% down and fully rented out at maximum rent, should cash flow $1,000+ per month after taxes, principal and interest. 

I assume you are considering an interest only HELOC vs a traditional principal and interest payment loan for the cashout.