Is it legal to offer to rent the property back to the homeowner who already lost their home to foreclosure when negotiating the redemption rights purchase? 

You would need to rent out the property for at least two years to demonstrate it was held for investment purposes and comply with IRS guidelines.

Principal Paydown: $2,441 Total Gain: $58,317 ROI: 360.32% (on $16,185 upfront investment: 3.5% down payment of $8,715 + 3% closing costs of $7,470).Year 2 Analysis Cash Flow: -$752 Home Appreciation: $6,120 Principal Paydown: $2,617 Total Gain: $7,985 ROI: 49.34%.Year 3 Analysis Cash Flow: -$375 Home Appreciation: $6,242 Principal Paydown: $2,806 Total Gain: $8,674 ROI: 53.59%.Year 4 Analysis Cash Flow: $9 Home Appreciation: $6,367 Principal Paydown: $3,009 Total Gain: $9,386 ROI: 57.99%.Based on these numbers, you’d have negative cash flow for the first three years and only break even in Year 4, assuming a 2.5% annual rent increase.Adjusted Scenario see second picture: Landlord Covers Gas and WaterIn the second scenario, I assumed the landlord would pay for gas and water at $300/month while maintaining the same 2% home appreciation rate.

We will rent to higher-risk tenants, but they'll pay through the nose to mitigate our risk.

Also make sure to build on a property located in a desirable location with larger pop density and if holding for rentals, charge median rent for that market as lenders want to see a bigger pool of buyers/renters available to occupy/sell. 

The last year I renovated a single family home to rent, pulled out some equity, couldn’t have gone better.

I looked at Redfin in El Paso after chat gpt recommended it as a high rent area and it was still negative cashflow. 

Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.5.

Are you planning to rent the entire unit at the 2nd year mark? 

Our lender has informed us that we need 12 months of rental history to use the actual rent for financing purposes, or we must rely on the appraiser's fair market short term rental value.