I have been renting this place from the seller, he finally agrees to sell it to me, so I proposed we do this by owner and through our attorneys.

I'm crunching some numbers and would like to propose to my mother-in-law who has already allocated in her estate plans to gift our two daughters $30K each (x2=$60K) for their college education.  

I believe you're looking at wholesaling the lease/option, and if so I can make some recommendations regarding deal structure and paperwork.That said, I'd also propose you strongly reconsider agreeing to pay market value and also be very careful dealing with townhomes/condos.If you're game, I'd love to hear more about the deal.

There was also a proposal to cut rental condos from 20% to 15% that was turned down. 

What you are proposing is to sell the property that you own to your IRA.

While this option may not be as profitable as what you proposed it will be cleaner and if this works your wife can help more people so the benefit will be in the volume. 

This was proposed to me by a prospective corporate tenant for the lease per the request of their Fortune 500 company:“Either party shall have the right to cancellation of this lease for any reason whatsoever upon 60 days written notice to the other party without incurring any penalty therefore.

However, during my 4 years of mortgage banking, I never had someone propose your situation for adding additional income via roommate.Underwriters always look at W2's and federal tax returns.

Also make sure you have your rentals registered and be aware that Independence new Rental Ready Program starts in June and Kansas City is proposing a horrendous new rental licensing and inspection ordinance that we may see on the ballot in November. . . . be sure to join the local landlord and REIA groups to stay up to date on the legal issues in the KC Metro.

Try comparing the numbers on various strategies- your current situation, the one you proposed, maybe keeping the one property VA and refinancing the FHA into a conventional?