They are not complaining at this point about having to make a mortgage payment and pay rent to me, so perhaps I am more uncomfortable than they are, but how do other landlords deal with this risk, or does it just come with the territory?

We live in Miami Fl, and we are so ahead of the payments. about 2 years on the repayment plan.

Because rents went down, and have not come back up to 2007 levels, my rents fully occupied match almost exactly with my mortgage payments.

Once it's been paid off, I will take out HELOC to use towards down payment on a new town home or to pay big chunks of payment towards new home. 

Conventional loans do not typically require residence.You just need to make sure there is NO pre-payment penalty for paying off the loan early.Also you will need all the repair money and carrying costs available in cash/credit. 

Since you're the new owner and you can't get a hold of your renter how are they going to send rent payments now to you?

I imagine (depending on the condition of the property) my largest upfront expenses will likely be the down payment and rehab costs.

If he is 80+ and just wants the cash flow, then give him 5-15% down payment and have him carry a note for 5-10 years at 5%.

@James Marshall Bank has the right to call the loan, but usually wont as long as they are still receiving payments.

The variable interest rates bother me, but the balloon payments sound like a recipe for disaster.