If the tenant-buyer doesn't buy the property after one year, I could just exercise my option and own the property myself. 

As for the code violations, exercise your google skills and see if you can find it online.

You do run the risk of the bank calling the loan because of the "due-on-sale" clause, although I've never heard of a bank actually exercising this clause.

Please help me know if I've got this straight: enter into a lease agreement (agreement #1) and also an option agreement (#2) at the start of the term and only enter into a purchase & sale agreement (#3) once the term is up OR when tenant/buyer decides to exercise their right to buy. 

https://www.thetaxadviser.com/issues/2012/dec/clinic-story-06.htmlIn determining whether the income should be classified as ordinary income or capital gain, the court evaluated nine criteria: (1) the taxpayer’s purpose in acquiring the property; (2) the purpose for which the property was subsequently held; (3) the taxpayer’s everyday business and the relationship of the income from the property to the taxpayer’s total income; (4) the frequency, continuity, and substantiality of sales of property; (5) the extent of developing and improving the property to increase sales revenue; (6) the extent to which the taxpayer used advertising, promotion, or other activities to increase sales; (7) the use of a business office for the sale of property; (8) the character and degree of supervision or control the taxpayer exercised over any representative selling the property; and (9) the time and effort the taxpayer habitually devoted to sales of property.

Yes dog is lucky with 2 walks a day and frankly both of us need the exercise! 

We're going to exercise the options and see what they can do.

They simply exercise the power of sale clause in the note on a non judicial.

Check with the title company....typically if they were notified, they have 120 to exercise their lien and buy you out.   

Theo agreed to support the exercise.