I could pay cash for the note and leverage the repairs, but I'm open to ideas.Also beings she wants to rent it indefinitely, should I consider a 5 year lease with 2% yearly increases?

Or are you planning on holding indefinitely.

He wants to know if you will continue paying him 12% indefinitely even if you can't refi.

You need to start generating leads there, then find boots on the ground.That will be the biggest task ahead of you really.Boots on the ground should be relatively easier to do once you have a continuous stream of leads coming in. Definitely

With a 1031, you simply DEFER (possibly indefinitely) that gain. 

It's scary at first, but the upside is much greater and BRRRR let's you go on indefinitely, so do that!

I don’t watch television much so I don’t know how common this is, but I can’t remember the last time I saw car makers offering that low of a rate.

While Sec. 121 (if you qualify) is really the optimal because it is not just a deferral (even though it can be indefinite) it is actually tax-free gain.

Then once they buy, you do it again - find another rent to own tenant.Happy to see Roy that you are putting your 0.2 cents in, definitely one of the more generous ones with your knowledge giving (I spend time reading your posts on this site). 

In today's low interest rate market, locking in a good rate on a much bigger investment for you, while deferring (maybe indefinitely) your payments to Uncle Sam is the best route forward to increasing your wealth.