Right, but I don’t want to evict and risk property damage or for them to become a tenant at sufferance living for free for 6 months.

Note if I was in a market without the historical appreciation of our market then I would be more in favor of paying off properties as the leverage benefits from the appreciation (property and rent appreciation)However, I realize 1) sometimes the tortoise beats the hare 2) that there may be more risk involved with high leverage and that some people do not function well with risk. 

those are great gross numbers and of course you need that for that price point as the risk of going back wards is greater.for us  15% of gross is a great day.. 10% is avearge.. anything over 15% is a HOMERUN

Although your property is currently not on the "High Risk" side of the Big Island, you are still going to take a big hit occupancy wise. 

Lower occupancy also yields less wear and tear, risk, maintenance and cleanings. 

I am not sure if hard money lending doubles flip risk or not?

@Matthew McNeil It completely depends on your goals and risk tolerance level.

Capital improvements should be an expense of the land owner as part of a lease option, otherwise you risk throwing that money away if you do not exercise the option.If the Seller's big concern is taxes go with a straight Seller Financing arrangement as it will provide the same outcome. 

Midwest will always look cheap and move up slower but the downside risk is higher. 

What are your thoughts in terms of the risk I am taking on?