Would this be a good investment to live for free and use as strictly a rental property once I graduate?

Whatever you decide to do, you may want to have a documented business process for accepting, reviewing and approving applications then issuing leases that you follow so that you provide the same treatment to all - Then of course you have to stick to this process.  

If they do not follow the payment plan then you should immediately send them to a Collection Company. 

I'll follow tour advice and keep it moving; but give her a light touch here and there until she's ready to fully commit to a win-win deal.

I am currently in escrow on a triplex using an fha mortgage + a seller carry back (second lien position) Due to strict fha guidelines on 3-4 unit properties...I could only qualify for 517k with 5% down.

FHA has some unreasonably strict standards for inspection.

I figured the advantages of this strategy are as follows:- Obtaining a negative cash flow of a $100 or so a month would be superior return wise than paying about 1000 in rent because I would be able to build equity.

They've been marketing properties in Portugal recently and they've been doing deals in Puerto Rico as well following the same model.Given the comments above, there's not too much I can add.

If I am looking to do the lease option in my market area (Southern California) but the rent does not follow the 1% rule however it does cover the cost of the mortgage is that acceptable?

question for your lawyer...I would ensure the lease is being followed and that there are no history that would lead me. to believe it won't be followed.