If you want to build up a rental portfolio and that property is cash flowing, it may not make sense to loose the cash flow if you aren't able reinvest the money into something with equal or greater cashflow.

Cost of work to do value adds also would add up.. its a low income building so it’s never going to be “nice” but can definitely get more rent as it sits, $50 per unit as they turnover, the 5 retail spaces are vacant and would need rehab but those are just sitting loosing money.

If you don't purchase or perform on the purchase in most cases you will loose your option money that you put up.

There are certain issues to consider like the due on sale clause which you can learn more about in the forums on Bigger Pockets but from what I gather is not something to loose sleep over. 

I have great credit, but I would like to avoid shortterm debt costs.I realize that I would loose income by delaying the renovation, but it is often hard to find good tenants in winter anyway.

That have, at best, a loose relationship with the actual value. 

What I say is around the lines of  "you may be aware of not but the the county has listed your property for a tax sale, you can still avoid the tax sale if you pay the taxes before the deadline but if you rather just sale this property, I would like to have the opportunity to buy it from you".I have also considered using the line "I'll buy it from you before you loose it to the tax sale" but I decided against it as it is deceptive and could be seen that way.  

Yes I may loose it, but ive heard of them extending 5x. 

I am just exploring any potentially creative solutions that are well within the legal bounds of the law - or at least the grayish areas!

so there is a good amount of risk in this plan to loose the house entirely.On the other hand your friend the lender could end up with the property as an REO and then re-deed it back to you.