As to contracts, forget about RE contracts for a moment, begin understanding basic contract law which ever real estate contract is subject to.

I am not flipping anything at the moment but if you have questions I will do my best to answer them. 

This just means we cannot expense our activity out there at the moment.

I will upload the photos of the initial condition of the home another time (unforunately I don't have those with me at the moment), but I will now go into detail with the improvements that we have made...

New construction is going for $500k-800k, and the older homes are $150k-250k, which is why I'm wary to guess higher than $300-350k at the moment. 

Think for a moment about what happens to his rent, and the rent of his tenants, each and every year.

It's a little chilly for my taste at the moment.

In this vein, I recommend @Charlie Fitzgerald approach, and do it fairly but in a way that will compensate you in the medium - worst case scenarios.We accept them right now with our place in Virginia, but fortunately do not have tenants with pets at the moment.

I do not have a large cash reserve at the moment but I can comfortably afford the mortgage even if I never get a renter.

Period.However I can't put in a loan file "the income we are using to qualify violates the tax code and the employer paying our borrower this income could at any moment face millions of dollars in Department of Labor fines thus putting it out of business, rendering our borrower unemployed and destitute, and of course leading to foreclosure" and expect to get the income signed off by underwriting.It doesn't matter that I understand it, it doesn't matter that it's common, it doesn't matter that it's "for tax purposes only" -- all that matters if I can get it signed off by underwriting.