Ideally, you get them to pay you directly for the cost. 

What happens if they don't pay rent or refuse to lease?

We could find nothing if we did not have a strong team on the ground to assist with number crunching puer investigation does not give you a real sense of what the situation is.

(I'm not sure how this will play out regarding the value of the home and only paying $160k.

They seem to just forward emails and pay vendors and collect the assessment fees.

I am targeting homeowners with dilapidated homes that need repair and offering to pay for the rehab and split the profits with them at the end of the project after the sale of the home.

An older (60's) remodeled home I bought via New Western for $223 that has a current tenant who pays $1650/mo; it has an apartment above a detached garage that was billed as needing "$10k in repairs to get to top of market rent."

In Charlotte, NC and in Charleston, SC, we have such an extreme lack of inventory, especially at the lower end of affordability- seller's aren't giving up their 2.99% interest rate to downsize and pay more for a home with a higher rate, so they are staying on the sidelines. and Builders cannot ramp up fast enough, and are being very cautious due to interest rates, coupled with inflation, where their goods and services also cost more to build homes- and, after 2008-2010, where many got burned, and badly, they are super cautious.

The seller however does not have any documentation to show he made any reasonable efforts to evaluate the borrower ability to pay the loan.

You'll get high quality tenants who can pay their own rent and they pay on time.