I believe we have all the paper work (5 day notice, original lease, updated ledger showing the non payment rent etc).

If you are really going to settle on this property - you could ask the owner to give them a 60 day notice of rent increase - send this notice effect September 1st, (don't miss this mailing) raise the rent to the number you want - if the tenant agrees to accept the rent increase - great - if not - you would be in a position to eviction them based on the non-payment of the increase or they will just move - you may want to say in that increase rent notice that there are plans to improve their living conditions, supply new appliances and whatever you plan to do.Do this will help get what you want without vacancies and still have a tenant who will be happy to comply to the increase.Cash flow is King - don't kill the King.Charles

So, if I happen to get the original property and still want to pursue this short sale, I'll have to find a way to fund potentially two properties at once, when I only really have a down payment for one.

Having a steady job will allow you to save cash for down payments on properties.

He needs to sell because can't afford payments, had a lot of bad things happen during the year (in the house), and has found a job out of state to get away/start over and just wants out (whatever the reason, he is motivated). 

Taking over payment terms, and then tying up the equity, is not beneficial to my overall exit plan.

Would it make sense for me to approach him about doing a Warranty or Quit Claim deed to get him out of the mortgage and I take over the payments and ownership of the home and prevent him from foreclosure?

Then make the payments no matter what.Short sales are only possible with an owner who is behind on payments and can demonstrate financial hardship.  

If buying by owner can get you a great deal, hiring atterney to help you with the offer and stuff is worth it.We personally looking for a deal like that for a small multyfalimy in NE Philadelphia to beat the crazy competition.If you don't have kids yet, you might want to check out househacking a duplex. live in one of the units for free or almost free depending on the area for a few years, save for down payment on your next home.

Closed in October 2013 at $152,000Over the next few years, I made some additions and repairs (new bedroom, bathroom, and extra kitchen in the basement), and now got two housemates - completely covered my mortgage payments.2015 rolls around and I start studying real estate a little bit more.