I own a house which I'm renting to tenants. We've entered a long-term rent-to-own contract, where the principle portion of each mortgage payment becomes potential equity for the tenant. How do I handle this in bookkeeping?
I would think that I'd create the future sale as an Asset account, decreasing from the value of the sale price, and my tenant's potential equity would be a Liability account which grows from zero. However, since I would be crediting the future sale Asset, I would need to debit the Liability, decreasing it.
I could create my tenant's potential equity as an Equity account, which decreases from zero into negative numbers, but since it's potential equity (realized when he either gets a mortgage and purchases the house, or his potential equity reaches the sale price), that seems wrong.
What is the best way to do this?