We purchased our primary property here in Hawaii in 2021 and have found immense benefit from the property setup which allows us to rent out our "ohana" unit (mother in law) which covers our mortgage costs.

A few things to consider: are you increasing rent each year to at least try to recoup some of the additional costs (everything goes up, so why should the family member not pay more-if it is your parents, it is more complicated), how much has the condo appreciated over the last 3 years since you bought it, and what would you do with the money when you sold?

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

You could promise a certain amount of closing costs then take a few grand off at closing.

Just regular business income?

Selling costs time and money. 

I've spoken with them, seen examples of previous deals, I understand how the business works, etc.

When I ask for reasons I get cost of living, quality of live, moderate climate, fresh water access, no natural disasters and moving back to where they were from.From what I can see the trend to the Midwest is steadily increasing, but by no means as big as moving south.

If it was useable before (small ding) and is now destroyed, I'd take her up on her offer, but I'd also pay some of the costs as it wasn't new when she moved in. 

I pick option 1In my opinion, you shouldn't do business with friends.