Regarding point 1), you might consider owner financing to a buyer and carrying the note as a passive income source. 

Don't forget that it's highly recommended that you carry E&O insurance as well.

The last time I was looking for a bank that would be a portfolio lender that would allow seller carry back financing for part of the deal it took me over 20 banks for me to find one who would lend. 

You don't want to do any long term installment contract without an attorney, if you can find one to do one.The DOS and FHA regulations are anchored in federal law, not administrative "discipline" and administrative rulings carry the weight of federal law. 

The lease and the option are two separate agreements carried out simultaneously.  

@Carrie Giordano and Account Closed, yea I'm not too sure they are willing to do repairs or give credits.

Consider carrying the utilities that are not easy to pass on if the numbers work.

I'm thinking if I can make a deal on the property, the owner may carry the note.  

If only they carried cabinets!  

Assuming one is in a 30% combined Federal and CA tax bracket, you're looking at $9,600/year tax refunds, your carrying cost is equivalent to $2,800/month after mortgage interest deduction.