I think it is unfair to speculate how much $ each party is "scamming" for... there could be a lot of extra and/or unforseen expenses involved for anybody... and nobody is in business to LOSE money!

Time is money and if a buyer isn't going to purchase something that is an opportunity lost for me where I am losing money spending time with them.

Home Value as is $125 KPurchase Price - $70 kThe owner I would be purchasing it from is losing it to the bank and wants to continue to rent with the option of purchasing the house back in 5 years or less for 90 K.I have never done a lease back ; what should I put in my lease with the renter to protect myself down the line if she was to struggle with payments ; damage the home ; etc ?

@Gabriel Meerzo  you don't have much if any risk save a few thousand bucks.... worse case scenario the loan gets called on the sub too or alienation of title.. and if you can't refi its the seller who is going to get burned... not you... you could lose your investment but you really had no cash in it any ways. your just buying 300 a month in come and will work for that income by landlording it.

Since it will probably take me several days to line up new carpet or pad only replacement I may lose these applicants.  

If they did, they'd realize that those properties are bad investments (they lose money or barely break even over time - over the long run).

So the strategy is risky if you can not pay off the first lien, you stand to lose once they foreclose.

He was breaking even/ losing .

@Israel CamposI'd say your biggest mistake might be the decision to not let yourself lose the earnest money. 

Getting it right can be the difference between making a profit and losing money.