This is at the heart of what William said above about entering into a contract in bad faith - i.e. with no intention, nor ability to execute the contract yourself.Best case, you loose your deposit and tarnish your reputation.Worst case, the Vendor takes you to court to compel performance under the contract. 

We are approaching our supposed closing date of Feb 11th 2018.Then we learned the seller is going through divorce procedure ( we did not know about this) and there's a court order saying the wife can stay 30 addl days after closing.

I declared this property by the deadline and have transferred money down (thru a 1031 intermediary).

You can pass it off to the contractor in the contract, but at the end of the day if there is a run in with the city, you will be standing in court along side of him or her.

I'd like to just declare it as 'real estate'.

So... it was fairly simple for the courts and the legislature to decide that the owner exception to real estate licensing law should apply to people who hold options.

The one thing that I will say having managed properties in other countries (China and Russia) is that you need to have a firm grip on the culture and the culture surrounding rental properties, land ownership, law enforcement, court systems, etc. 

Tax-wise, any sub-letting profit in your pocket MUST be declared, right?

I talked to an attorney and he said the contract is a landmine and the courts will favor the homestead buyers. 

All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.