It's too risky for you.

IMO, that's insanely risky ..

I knew it was risky but (for a while at least) the prospect of having it as an option seemed appealing.

While I would agree that your proposed business practice looks like a great way to minimize your risks, I think you're going to have a real hard time finding contractors willing to adhere to that.If you're worried about getting taken, then buying the materials yourself is one of the better ways to mitigate the risk.But you're going to find very few contractors willing to start working without any payment up front - even if its for labor only.At some point, you really need to take a leap of faith when doing this.To me, the best way to mitigage risk is to break up rehab jobs into smaller pieces and pay as you go.

If the deal goes sour, not only do you risk your investment property but you also risk your personal residence.If you have a sizable amount of equity above and beyond what you would pull out for the investment property AND can feasibly make the payments on all three loans WITHOUT rental income, the risk is not all that great - but they are risks nonetheless.

Too risky in my opinion.

Some call lease options risky because you're still relying on a tenant paying rent and qualifying for financing to complete the transaction (the purchase option)Ken Corsini wrote an article covering some of the risks, you can check it out here

Like you pointed out there isn't much upside for the risk. I

In my opinion, it makes more sense to own that house via sub2 rather than try to do a risky SLO.

I do take precautions to reduce the risk. I