And his personality that you describe is just another reason why you shouldn't continue to allow him to improve the house nor let future tenants ever do improvements.While it sounds great and like some sort of freebie, it sets you up for possible trouble.

What you described isn't the way to do a Lease Option...at all.1 - You NEVER fix the house up if you only have an option on it.2 - You never give or get credits for rent towards the purchase. 

All, I am in NJ but the challenge is the same as described above.

Once you have a system going, you can KEEP every third or fourth one in the way that you described above. 

But you need to know who's paying the bills, and therefor who's more important.If none of the internal investors bite, then they will often put it on-market.When it's on-market, it behaves very much like @Jon Minerick describes.

I am going to describe the "case" and would really appreciate your ideas on the seller financing route. 

Do not record the actual option.To finalize the deal, as you describe, you would need a simultaneous closing with the seller giving title to you, and then you to the end buyer.But remember, Just because you have an option to purchase at a set price for a set term, does not make you the owner of the property.  

wow if that works out as described this is a HUGE homerun.. hope it works out..

Most can give you either a budget for the job if you describe it well enough, or a SF price they see as typical.

I have a network of friends and family that are excited to invest in the deals I have, so I am NOT looking for new lenders.My biggest questions are these:What is a reasonable interest rate for a loan described above?