Did you renovate the property during the term of the lease, but prior to exercising your option to purchase?  

Then I go through the exercise of at what price can I buy this house to make it a good deal?

so that's 7500 + 2k + 7K refurb + 4k mort + 1500  so that's about 20 to 25k to exit a 150 house.and if you don't 1031 you will have recapture so for this exercise lets say you have 5k in recapture.. 

They have assured me they would not exercise the due on sale clause.

This option gives the lessee the right to buy it outright in the future if you want to, though for estate reasons, you may not want to exercise it.

From a trend perspective it looks like a trailing end of a Sellers Market, but while that is a trend every single property has its own story and there are deals to be had.The idea as a textbook exercise is sound - but will succeed or fail depending on the tenant and success you have with the renovation.1.

It sounds like a good exercise for you, so hoping to see the figures. 

Jack as we age this becomes a real exercise.. for me its all about paid for assets. and limiting long term liablities.and well I jsut dont particularly care for the rental business in the SFR space.I prefer buying debt. or originating debt.. or doing value add like new construction.. 

Also a small possibilities the first lien holder would allow you to step into the borrowers shoes and make loan payments.All this is probably an academic exercise because if a property with an uncompleted rehab has a second lien in place of the required equity, there would be no equity for the second lien holder to worry about. 99% chance with a second in this type situation there is no equity above the first until rehab is complete, despite what the flipper wants you to believe.

Perhaps we can try your exercise too.