But what we learned from that event was that equity doesn't necessarily dictate outcome when modifying notes because of what's often referred to as "emotional equity" (i.e. people often want to stay in their home because of an emotional attachment to the home).

Run it like a business, not a hobby.... be respectful of tenants but take the emotion out of any decisionsThe $$ above the PITI is not really your "cash flow"......calculate your cash flow after you factor in the expenses that WILL happen.... not IF.... but when. 

Bottom line, a sub2 lease back with option to buy deal will not likely benefit someone going through a (ugly especially) divorce because the deed and the mortgage are probably in both their names.She needs cash so she can cash out the ex and get a quitclaim from them/him.A sale and lease-back with option to buy is a strategy, but it rarely results in a successful exercise of the re-purchase when the seller takes such a massive financial and emotional blow. 

Primary residence buyers make choices off of emotion, (good) investors make choices based on numbers. 

Investing is subject to the whims of human emotion which creates inefficiencies. 

I would rather have this problem fixed than going through the trouble both "financially" and "emotionally" of finding another place.

We're getting the yard in order and will probably work on a different remodel project to allow emotional healing before proceeding.

One thing that is really nice about this method is it takes a lot of the emotion out of the deal very early on.After you identify your target renter, look at the market and where you want to find a property.

While I commend you for having emotions, I don't see how this is your fault at all.

Home buying can be emotional but at the end of the day, the numbers need to work.