Silicon Valley has been a hotbed...and will continue to be...until tech looses some of its secondary funding from outside the U.S. that will incur a cooling period.  

I was surprised to find that they negotiate pretty loosely...

If the tenant feels they have nothing to loose, there is no incentive. 

Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

Combining IRA funds with personal funds can be done if carefully structured, but certainly not as loosely as you suggest.  

If I do this, I would not only save me time on buying and fixing again but also not loose the 10k or so that it would cost me to sell it (not to mention the moving costs).

And now check out a chart of the 10 year treasury (loosely tied to mortgage rates).  

This way, if they back down for any reason, they loose the "option" amount, which will the allow you to sell their "custom" home to someone else and have less risk.I am not an attorney, so make sure you get an attorney if you decide to go this route.

The same thing happened with South Wedge and its bound to happen again and again.

Charge a lower option fee and calculate your monthly costs into the purchase price plus a premium.Otherwise you have invested in this property to break even, as there is not much difference between what you owe in conjuction with what you loose each month relative to the incurrance of equity.Sale Price - (You loose x per month plus x amount owed) + Profit Premium = Was it worth it?