I have financed small rental purchases off a line of credit, but I have also treated it like a mortgage, setting up an automatic payment to pay it back every month just like any other mortgage, accounting for principal and interest to where it is always shrinking with each payment.  

I would treat the rent and contract for deed payment separately.

I prefer they be treated as return ON.Let’s see what other more experienced folks say.

But your accountant can treat the sale as an installment sale and you would pay the tax in the year you received the money (the next year).  

You'll probably need to treat it like ord income (in OR that means up to 35% gone) plus penalties for early withdrawal.Hard money looks better to me since you're taking your future reserves out in case stuff gets tough.You may want to ask about a self-direct IRA funding the project.In any case, ASK YOUR TAX PROFESSIONAL BEFORE YOU MAKE ANY DECISION.

@Kevin AllenIf it’s a flip where you receive the proceeds and use it as a down payment for another property, yes you will treat that profit as taxable income, taxed at your ordinary rate.Since you are looking to move those profits into another property, research a 1031 exchange, it may be worth exploring as a method of deferring the taxes until (if) you sell the next property.

Sewer is a function of water and can be treated similarly.You can probably agree to split trash 50/50 as that is probably the easiest of them all in terms of allocation.The hard administrative part is how to collect all this from your tenant. 

@Zack RoyalsDevelopers normally don't treat their assets as capital assets.

Treat your tenants right and you should avoid any potential lawsuit. 

I wouldn't offer 2 months, maybe one.They should be making mad unemployment money.I'd consider offering them cash for keys to move out in 2 weeks or I would start the eviction process.You ultimately have to treat this is a business. 3 months behind is plenty lenient.