the gentlemen I fund finds them does the due diligence and I verify based on my years of experience at development.. but keep in mind these have some risk of failure thats one reason the returns are so high..

For any particular reason?

We thought about doing seller financing for the $172K but it will likely take 10+ years to pay the full amount at any sort of reasonable monthly payment.

Her reasoning is that she put it in her schedule and she could have accepted other cleaning jobs. 

It is lakefront so that is an important reason.

It’s only time before commerce and gentrification follows…There are lots of 2/3 flats in the area with reasonable pricing etc… 

Seems reasonable to me.

I can think of a couple of seemingly great reasons to stay in the deal, which would be 1) they'd get a portion of the rent we'd be paying to live there (again, I assume this would be split 2:1:1), and 2) if we live in the house for a couple of years, couldn't we sell it tax-free, since we would be owner-occupants?

Just don't combine old and class D unless you have a very good reason. 

I am hoping to find a reasonably priced photographer to take some sharp  photos of a Property.