Mike- Although you may know her, it should not have any relevancy unless your related.

Your relatives bank will provide the proof of funds and then at closing you will be told the amount to bring to the table. 

You probably just need to have an attorney talk to your relative to assure them there is no risk.

Your relative is going to need to take title to at least as much property as they sell in the 1031 if they want to defer all tax. 

But like @Roman M. says, it's usually not an issue as long as payments are maid on time and in full until you naturally sell or refinance.As long as your relatives don't claim the interest writeoff anymore (as they shouldn't) and you keep records proving you are the one making payments, you can claim the tax deductions on schedule E.Other pitfalls: you don't get the credit score benefits of making ontime payments.

Meet with an attorney to get a solid lease agreement you can use, even with your relative.

As you pay into the escrow you will have a 3 month buffer, so in September the total taxes due should be in your escrow account, which you will pay in November.It is a good idea for your relative to look into a mortgage servicer.

This helps if your business does not make as much as your employment which may also match contributions, but requires changing or quitting your related job.  

so you're picking between immediate loss of capital vs. cash flow $200/month, even accounting for PM fees/repairs if you or your relatives don't want to manage.I'd go with the latter, unless you have something where you can put your capital in that will bet you $200/month.

Your note model I get why you want to do it.. but its just on the extreme far end of risk for the investor.. no one in their right mind would buy those unless they are your relatives or friends or someone I guess who takes a liking to you personally.the way I look at it and underwrite it  personalities and such aside I am sure your a great guy with great intentions.But here is what I have seen you post.1. you buy a property and put a normal first on it.. you or your investor puts the cash into the deal .. that's great.2. you lease option it to a buyer or rent to own buyer.. now again your new to this so you have no way of knowing how many if any of these will actually buy.. my experience of doing this the last 30 years and have done probably more than 50 lease or rent to buys is VERY very few will buy..