It is very solid, has room for improvements to add value, and has opportunity for cashflow.

Just look at the 50% Rule Cash Flow to see what could be.The bottom line is stay conservative with your analysis and try to keep to your criteria.  

Assuming your lease requires them to abide by the rules of the HOA, they are breaking their lease.

For anyone who has screened a tenant and seen the outcome, where would you bend the rules to get a tenant in the house?

Let's start with the "what you never do" list:First rule -  Never combine the two (lease and option) in the same agreementSecond Rule -  Never connect the lease and the option. 

In my state if you redo insulation you have to keep that with your housing information so when  you sell you can show what improvements you made. 

Also, it creates value as properties are improved and a service is offered.

I was also working for a community bank at the time and they were able to loan us the 10% down to purchase it and then we refinanced it once we had done the improvements required for a conventional loan.

Anyway, I have read much about the 1% "Rule", but there just doesn't seem to be any houses that could qualify for that due to the prices.

I guess we can do a walk through and discuss the price in advance, what are the rules of thumb for figuring out a fair price for repairs, cleaning, maintenance etc. ?