He identified a niche in the medical student rental market, based on what he had learned from surveys that he had conducted.

ZERO marketing costs, Great exercise and you get to meet Wonderful people.

It's not unheard of but extremely rare for these to be exercised. 

Early on I would not care so much about getting the property, but more so going through the exercise of evaluating its profitability.

I was then employed in law enforcement for 5 years, and with the money I was able to save, I have rented my home out with a positive cash flow and I now attend Florida Atlantic University in pursuit of my pre-medical biology degree.

Example: Betty has a lien placed on her property by the HOA for $20k, and back medical bills of $50k, and her house is worth $100k.

If her house sells she'll probably end up exercising that option shortly anyway.

No different than exercising an option on a stock.

So, it is important to have a properly worded lease that does not allow for the owner to break the lease on technicalities.You will need to finance the owner out by exercising the option. 

I dont like sandwich L/O's- lease optioning from the owner and lease optioning it out, too much can go wrong.Like you said, if you dont exercise your option, you lose your option fee.