I want to buy and hold and have enough for about 20-25% of 165-175k for investment down payment.

What would be the best and smoothest way to transition the tenants to a different payment option?

You’re doing the right thing, trust but verify.

I'd rather not do an entire cash-out refi because I have a much better rate on the property than I could get today.With a 70% LTV planning factor, I'd still have plenty of room for the cash I'm looking for to make the down payment (~125k).Thanks for any help/advice!

Why land trust?

I have over two years of 1099s, a very high credit score, and enough capital to put down a 20% down payment on properties around $250k-$300k.

Sometimes, when I have credit pulled, it displays some DSCR loans but not others (credit bureaus are a black box), however, the mortgage payments are just reported to the credit bureaus to account for late payments (which plays into conventional financing eligibility), but they do not play into a borrower's personal debt-to-income ratio when qualifying for conventional loans.

This is certainly text book and absolutely the proper way to analyze a deal.Im not sure what he owes on the home but based on the payment and the year it was bought and the fact that its 20 min from Austin im just going to throw out 500K for conversations sake.500K compounding annually at 3% for 5 years comes out to approx $578,000, and you have the loan paydown aspect as well obviously. 

I do however have a decent sum of money in savings for a down payment as well as would be able to get a parent as a cosigner on the loan to help with income if needed.

I am charging a slight premium over the list price of the house to lock in the price 2 years in the future and giving him 3 options to pay the fee for the option to buy.Option 1: 3.5% Payment for the option to purchase the property within the next 2 years.