I didn't think it would happen so fast, but I was driving through a residential area near where I live and spotted a house for sale by owner on a low traffic street. 

One of those 5 loans has now completed a short sale, and I got back 94% of the principal (it hasn't hit my bank yet, but I'm sure it will), which represents the net proceeds.

I will take your word and assume this is a legit sale.

They are only willing to finance a small amount as they say the money down they need to cover the taxes owed from recapturing all the depriciation over the years.What are the rules on recapturing depriciation when a seller wants to owner finance the sale? 

You could make the sale contingent on the two POHs having a title.

. $275,000 with an end sale of $390-420,000 doesn't sound like a break even to me.

Has a taker, rakes in the option fee, the extra rent, and IF the house sells, the difference is sales price.

The obvious answer is flipping.Basically they buy a property needing a lot of work, they put a lot of money into it, then they list it for sale.

There was old food, and abandoned furniture.  

It is free other than buying your food.