And if your budget is 15k for closing costs and rehab, what happens when something goes wrong like a water heater, air conditioner, medical bill, car breaks down, etc?

The house should appraise 20-30% more than cost to build or it may not be worth the exercise unless cashflow is really good. 

I've collected rent in bars, restaurants, casinos, WalMart, my driveway, at an armed security gate at a refinery, a medical clinic, a hospital room, and ATM's at a bank and convenience store.  

To give you some info about myself...I graduated from college in May Debt free and am currently in the Medical Device Industry making 80k in year 1.

The tenant had 3 years to exercise his option to buy , buy failed to.

Maybe some day I will take on this exercise. 

Sigh... we really liked this one, but it was a great exercise in running numbers, which brings me closer to the YES property I'm thinking. 

His wife's paycheck goes to cover their medical insurance and burden.I tentatively agreed to "hire" him to do this project--demo the existing old tile & backer board down to the studs, (bathtub is OK), create a new surround with ceramic tile & a glass band going around the 3 sides.

This is a loaded question that is near impossible to answer without extensive financial information on your client's age, responsibilities, income sources, other investments, insurance, medical needs, the list goes on and on.

Only problem with this is that they exercise in 2 years and i reduce by 3 year assumption.Also, on the HUD how are you having the option deposit be credited as a downpayment?