Lease Option? Land Contract? Or Walk Away?

[Kyler Pace]

I have an interesting deal that I'm looking at and need some guidance and advice. Here's the story:

A tenant had a 3-year lease option to purchase his residence but was unable to exercise his option due to not having good enough credit to get a mortgage. He is looking for someone (me in this instance) to step in, offer the seller a $25k down payment to extend the option for 12 months, so that we can turn around and sell the property next spring. It looks like the seller is willing to do this. He's offering me a 50/50 split of the profit when we sell. My share would probably be around $35-40k.

I certainly haven't ever done a deal like this, so what kind of due diligence do I need to complete? What questions should I ask?

Also, any ideas on the best way to structure a deal like this to best protect my investment? I don't have all the specifics yet, but I think the tenant is going to want it to be a straight lease-option between me and the seller, but I have also been given advice that a land contract may be a good way to go. What are your thoughts?