We simply told the truth, because my wife wanted to be closer to work.

I entered into a Land Contract with someone and they have been making the mortgage payment but they were supposed to have bought the home outright several years ago. 

No reason to worry at all, the seller simply wants to save himself some commission lol.

As she is approaching retirement, she no longer wants to manage this rental property on her own, and we were instead thinking that she could pay off my mortgage, and then I would enter a "rent-to-own" agreement with her.

I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.That same management company also had an early termination cause in the contract.Now, this may be local to my area, but I soon after received some wisdom from a few other investors.

Simply living below your means (staying in that house) and investing in mutual funds for a few years and you could both retire early. 

@Colby White I use it for total costs, but you can use it in whichever manner makes it easier to quickly evaluate deals.The 1% rule is simply a " deal funnel" tool.

@Travis Walker I agree with @Simon W. see what you can afford. but to answer your question simply, i was also in debt with student loans, car, etc and i chose to invest in real estate anyway. yes its a risk but if i waited till im debt free id be waiting forever because its always hard to take the leap. with real estate on the side, i paid off my debt a lot faster.

@Kelvin Letron Brantley like @Chris Mason said, most HML will look at your credit simply to determine the risk of missing payments.By nature, hard money loans are asset based.

If I were you I would simply buy a duplex in Shaker that is already in great shape.