You will then have a few options with that rent money....you can put it into principal or you can start saving it to purchase yet another property.

@Orane JacobsHouse hacking in San Diego is a smart option even with the expensive real estate market.

What would you do and what is the best option here? 

Before diving too deep into property searches, it's wise to first determine your financing options.

Most lenders will offer two options:1: 20% down and 20 yr amortization and 10 yr term.2. 25% down and 25 yr amortization and 10 year term.Rates will vary by region, lender, and relationship with your lender.  

Take a look at the find a lender tab or work with a broker who can quote you multiple options from a wide variety of lenders! 

What are my options and potential workarounds?

You could even offer a lease option for when they're back on their feet... get creative and generous!

I would agree with @Michael Smythe - the only way a seller comes around to a sub to transaction is when they have no other options or are uninformed.

Keep your options open and decide what works best for you and, just as importantly, what strategy your particularly property will fit.