I want an air tight transaction and will have an attorney review and give me their seal of approval once I feel like I have thought of every possible negative outcome for myself.So far the possible negatives I have been able to think of are below and my intended solution will follow:Dodd FrankFinding a tenant without a license (I would like to market to those who have high days on market)facing penalty for performing broker transactions without a licenseI would market, find motivated seller, let them know that I can provide them with a cash offer, they can sell with a realtor (pay the commissions, spruce up costs, holding costs, etc.) or they can sell on lease option and get someone better than a regular tenant in the home.I would use standard docs specific to my state but they would be modified to include the below:Letter of IntentI would have them sign an intent to sell where in it, it would state that the property will be purchased via an option and the option will be in the name of a land trust.it will state that I as an owner and friend will be allowed to assist in the finding of a tenant, negotiate the lease terms, and be allowed to show the property without any compensation and at my own expense.LeaseMy lease will have verbiage stating that the tenant will be responsible for repairs, and normal up keep / wear and tear associated with the property up to $250 (this is my benefit I sell to the seller so that they don't have to deal with every tiny little tenant issue.Tenant will be responsible for all utilities and they are to be in the tenants namewill be allowed to extend twice, each for a period of 12 monthsTenant needs to inform owner of extension no less than 30 days before lease expirationthere will be no mention of the option within the lease, PITI will still be owners responsibilityWaiver of Liability associated with LeaseI will have a document created stating that the owner is solely responsible for the final approval, screening and placement of a tenant and that there will not be any recourse for myselfOptionFor the consideration of $1 (with receipt from trust to the owner) the trust will have the option to purchase the property no later than 45 days after the expiration of the lease.The purchase price will be agreed upon within 5 business days before or after the date of the lease expiration and if both parties are unable to agree upon a price, the owner and trust will each get their own licensed appraiser, average the two out and split the costs.this will be an option / right of first refusal hybrid and will very clearly lay out the expectations that there will not be any seller financing, the transaction will be in all cash or if the beneficiary of the trust so decides to get a loan from a reputable / licensed lending institution they need to provide a pre qual letter within 14 calendar days of the lease expiration and mutually agree upon a closing date.I would then sell my beneficiary rights to the trust for $5k, and exit the transaction.

It's good that you've been conservative with your estimates...you only get hurt when you underestimate.I think  you might be a bit high because your numbers are based on the next replacement date, and not the average usable life of each item.  

As long as your number work (and don't force them to work, be very conservative), then this should more than pay for itself.I assume you don't have another way to fund your project?

This opinion will be pretty accurate and conservative for the most part.

You didn't technically pay this amount to anyone but it is part of the "investment" you need to be a conservative investor. 

On a conservative side, I believe it could rent (without any updating) for anywhere between 900-1000/month (Current resident who has been in unit for 3 years has paid 950 without an increase).

If they want me to be the responsible party, I will have to transfer that burden to my tenants meaning a bigger deposit or tougher renting rules. 

Here are our current monthly numbers:Current Mortgage with PMI, taxes, and insurance: $2485Upstairs rental: $1500, so we are paying $985 "rent"Conservative projected numbers within 5 years:Mortgage (after refinancing out of ARM and PMI: approximately $2200Upstairs: $1600-1650Downstairs: $2300-$2400Monthly profit: $1700-1750Despite all the challenges, stress, and struggles I feel like this project was well worth it, we learned SO much, and for the most part, really enjoyed the experience.

:pro - cheaper than canada real estatecon - more than 5 miles away from canadaThe "cheaper" part is not always true at the moment with the 25% premium when converting currency.

This is a form of counter-party risk.