The owners want $40k up front and then will finance two other payments at 5% for the next two years. 

Since we don't owe anything on this property and are looking to hold loan payments on next purchases I was hoping that we could use the equity towards that.

The option fee usually becomes part of your down payment, but is lost if you do not exercise the option.

Sell the car payments, brew your own coffee, learn to love pb&j, get a 3rd job.  

Ok my friend asked me about his idea  - to set up a business to offer landlords upfront payments for their future rent checks at a discount for example rent for year 12,000 - he would offer 10k.

The 5 that have not been paid in full are all in default.That works out to a 36% default rate, and 43% that either defaulted or had late payment(s).

Why is the renter paying your down payment and agreeing to buy at a $30k premium in 3 years, plus shelling out an additional $500/month until then. 

I wanted to give them much lower down payment And have them finace the bulk of the purchase price.

@Manolo D. we were definitely happy with the overall outcome. the GC we used did a great job. we plan on using his crew again on our next property if possible. however, I'm guessing you're referring to my other discussion about rehab costs from my contractor. we were happy with the outcome of this project but I don't have anything to compare this to. the fact of the matter is we don't know if his prices were fair for the market. we were in very unique circumstances on the last project where we had flexibility with our budget, so even if he charged more than the competition we still came out on top. moving forward we need to know more details. we are currently making offers on properties in need of rehab and we're using this GC's quote to help us budget for our max offer. if we can use him and still make a competitive offer then we will but we are getting beat by other offers. we just need to analyze all factors to see what we can change in order to compete. the two main concerns are that we are up against other investors making cash offers so they have no loan contingency and no mortgage payments inflating their holding costs, plus they probably have cheaper labor and material costs. so, we're just trying to analyze everything. our GC did a great job, only went slightly over budget compared to his original estimate, but we did plan for contingency and I ended up doing a lot of the work, so we were overall under budget, and he offered the quality of work we were happy with.

Almost immediately they are contacted by someone very interested (investor) who offers a lease purchase for $100 - or $10 - down, they would take over exact payments owed (lets say $1000), and will have the OPTION to pay $125K in 3 years.