But they do have an attachment to the leases describing how important it is, the fact that landlord insurance does not cover their personal belongings etc.

I plan to present detailed math with AVR, pictures, timeframe and exit strategy.

With the appropriate deal, you can cover all your expenses and live there for free while building equity.

The owner is 62 and (no family) and wants to retire in 3 yearsThe rents cover the expenses including the monthly payments.

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As for the repairs and vacancy, is that covered by me the buyer or property management?

It's going to be tough to cover CapEx and maintenance with only $350/mo and the risk just doesn't seem worth the reward.

If your insurance covers loss of rental income that may be another source for capital during that time and may offset the cost of the hotel.If its going to take longer than a few weeks, you may offer to have them stay in another rental property if you have one available until the repairs are made.If none of the above options are available, then you may have to look at evicting because the house is not habitable and is too much of a liability.I would definitely exhaust all options to keep the tenants if they have been good tenants. 

It's best in this situation to stick to the legal script just in case it backfires.There was a podcast episode that covered something very similar, can't remember the number or guest but it was a few years back. 

Here's some before and after pictures of a flip we recently completed for Urban Capital Group here in Pittsburgh.