You will have more self confidence, be a better manager, act sooner, and SAVE MONEY if you anticipate these common problems and know how to proceed BEFORE YOU PLACE YOUR FIRST TENANT.1) Print out your local and state tenant/landlord laws and put them in a binder. 

The choices are still (1) purchase the house for 95% of current fair market value or (2) sell the house and pay off the loan with sales proceeds. 

I think selling individually and using proceeds to get closer to what you actually need is the way to go.  

As of right now my plan is to sit down with the tenant and discuss the options he has which I see as the following: Option 1: Give him the “Pay or quit form” 3 days notice then proceed to evictionOption 2: pay for month due and move out at end of paid monthOption 3: Pay for month due and continue paying at new rent of 1300Option 4: Cash for keys?

If so then maybe you have an ethical reason to proceed and I wouldn't argue with you at all. 

I had to guess on some of the numbers, but check this out: Loan Quote Comparison Acquisition Price: $295,000 Current Cap Rate: 11.4% NOI: $33,600 Loan Quote: 15-year Amortization 20-year Amortization 25-year Amortization Proceeds Loan Principal: $221,250 $221,250 $221,250 Origination Fee: $2,213 $2,213 $2,213 Net Loan Proceeds $219,038 $219,038 $219,038 Down Payment $75,963 $75,963 $75,963 Payments Rate: 5.00% 5.00% 5.00% Loan Term: 5 years 5 years 5 years Amortization: 15 years 20 years 25 years Monthly Payment $1,750 $1,460 $1,293 Monthly Cash Flow $1,050 $1,340 $1,507 Ending Loan Balance (Balloon) $164,958 $184,644 $195,984As you can see, you'd be netting $27,420 more cash flow over the life of a 5 year loan by choosing 25 year amortization instead of 15 year.

So, we proceeded to say OK, we'll pay $84K.So, we waited, and waited, and waited for a contract to sign. 

The owner had to move into a assisted living home and the proceeds from the sale would go to the state to pay for those expenses until all personal funds were depleted and then the state would pay for the rest.

I dont know how to respond to his text and whats the beset way to proceed??

I am waiting to hear back from my realtor to proceed, but wanted to have a little more info so I can make educated decisions.