We are super busy, and aren't really in the business of running errands for tenants and then bringing keys to them like their own personal assistants.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

I'm getting nervous that the area is eventually going to become unlivable because of the prohibitive cost of the insurance.

And cover the closing costs.

How Technology Changed My Real Estate Business in the Last 25 Years25 years ago I decided to “formalize” by hard money / private money investments and start an investment fund and syndicate these note opportunities.

Laws and deadlines are very specific and missing something will end up costing your time and money.

but yes its a common business practice in many arenas. 

2) Is there a portion of that nonrefundable deposit that is considered the cost for the lease option?

You may be thinking of the FHA rehab loan, where you can wrap renovation costs of up to 110% of the purchase price into the loan. 

First, we have had some issues jointly owning the property with family and would like to separate business from family.