I want to do this the simplest way with minimal cost to the both of us.

The tenant has repeatedly indicated she just wants to move on.

You have to really analyze where the project could go bad and have contingencies in place in case you run up against them - i.e. the house doesn't sell, you have unexpected costs during projects, what the SOW of the project will entail, what your marketing costs are (his wife as an agent will help minimize these costs), what if something unforeseen happens and you cant finish project, whos name the house will be under, and that might determine who will be able to pull permits if needed, etc.Anyway, you should spend A LOT of time going over "what ifs" and sit down with your attorney and pound out these details.

Odds are you will lose her $1k pretty quick or have minimal returns at best.

As  @Ned Carey indicated you need to have room to build extra equity through Rehabilitation (adding value).  

Well, needless to say, we're at a standstill since there's a 12 month seasoning period for land contracts at which point i can only take out a small amount of money (my very minimal rehab costs if I'm not mistaken?).

Put in good products and do regular inspections and twice a year HVAC servicing and you will minimize issues.3) This is taken directly from my lease.

Check out --http://www.lonestarlandlaw.com/Lease-Options.htmlIf you're looking to find Sellers and dont have much money, then to get started you can generally stick to the traditional methods of scouring craigslist ads and other websites for sellers that are renting or selling their own home, making bandit signs to display in your targeted area, networking, handing out business cards, placing an ad in the local newspaper, driving for dollars, sending personalized letters to specific targeted houses, and doing some minimal direct mail marketing in a focused area when you find a good deal on printing/shipping.

If you fail to disclose the loan from the seller to your primary lender, then you might run into issues at closing or be in a bad position if the lender ever finds out down the road.Assuming your primary lender is okay with the owner financing, the closing company should be able to complete the paperwork at closing for a minimal cost (maybe $50-$100).

He indicated he did, and we negotiated a price for $350,000.