Now, we are out of the identification window so we are left with either trying to save the current deal (which involves accepting terms that weren't initially part of the deal or call it quits and pay the capital tax gains on half of the proceeds from the sale.Are there any other options that would be worth considering?

What are some of the challenges an owner would have accepting this type of deal.  

The whole reason FHA developed a short sale method is to reduce the loan balance down to reality, down to what the home is worth, down to the value of the collateral at the bank accepted. if they had the cash, they wouldn’t be behind on their monthly payments.You're right I overlooked that part.

All three generate leads from insurance claim residents and traveling professionals (medical and the trades).One of the advantages of FF has been that it's forced us to have systems in place to create leases, accept security deposits without co-mingling and provide "live" customer service. 

Then, if the amount is less than the asking price, advise you on the chances your offer may be accepted.

It's like accepting a full year or rent in advance as a landlord.

However, since I was already negotiating with them, they allowed me to accept the newly posted price within 24 hours, which I did.Now, I have two options: I could fix and flip it with an estimated $200K rehab for an ARV (After Repair Value) of $825K, having purchased it for $465K.

@Ronald RohdeWell, just waiting for seller to accept my offer.

With the VA Vendee financing program VRMCO is just hired to do the marketing and field the offers but is ultimately the VA that decides on accepting or turning down the offer?

I’m willing to accept higher interest rates on a line of credit as the overall $$ amount is significantly lower than refinancing an entire property at the above mentioned 6-7%, not to mention restarting the amortization schedule all over again.