This is a common situation of a seller thinking they are going to get top dollar by selling to an investor.Best thing to do would be to kindly explain to her, through providing actual data, that her house is not worth that much. 

I have a similar situation

Should I immediately rescind my offer and tell the seller to fix that situation and get back to me after, reassess/resubmit the offer with the eviction factored in, stay put and inquire more about the eviction, or whatever else I'm not thinking of?

I have stressed to them the importance of ensuring we have a great JV contract signed by each of us before we move forward.

I stress to you large opportunities so here is a thought - check with a local LO with USBank and determine if they have an appetite for your situation.

I figure if i find a good deal that doesnt require too much time or money in repairs and find a suitable renter, its more cashflow to give me that little boost to get started before i can make some waves.So my question or advice that im seeking is, when i do find the deal(s) that i like, do you think it would be more beneficial for my situation to buy at 3.5% down and buy more houses that way in order to get the ball rolling or put down 20% on one house?  

It's always situation-dependent. 

thanks guys....It really is a tough situation.

I'm new to the site as well.I agree wholeheartedly with @Jim Wilcox about the need for a strong lease (e.g. one that covers all types of situations).

You have a square peg / round hole situation which is always tricky in insurance.