The overriding concern is competence. 

Playing the role of "bank"), I'm assuming I could still lease option the home out with minimal concern of a "due on sale" clause to be called...  

I'm concerned it would be difficult to fill all 4-5 bedrooms.Have you made a profit the entire time with your rental unit?

One of my wife's uncles was in charge of one of the properties which is zoned for commercial/residential, it is a 1708 Sqf office space/small warehouse on .36 acre lot.Which with some research it can be split into 2 lots.He let the property go to the dump, needs a new metal roof, and gutted, replace plumbing/bathroom, replace electrical etc...Now my wife’s Aunt is in charge of the estate and she was the one who approached me.She said they will "sell" me the property for $30K (estimates from Real estate agent say property is worth $43-$53K in current condition) Which then I could clean the property up and try to resell with the improvements.Now if I did replace the roof make the inside look nice and clean the overgrown landscaping I was told (real estate agent) it could get about $60K, but there are back taxes and liens on the property as well.Plus closing cost for when I sell it, I have run the numbers and it seems that I would MAYBE make $3000-$9000 conservatively.But I am real concerned over the fact that it is used as an office/commercial, and wouldn't this limit buyers?

He is a good worker, but I am very concerned about having him work on occupied properties (so far I have only had him do exterior yard work on vacant houses)--   When I confronted him  about what we found, he said that I was happy with his work so why am I concerned about lhis past & doesn't everyone deserve a chance, etc.What would other landlords do? 

If you uncover any concerning issues you can go over them with the applicants before signing.I'd also recommend going through the lease, explaining any important restrictions and the penalties.

Now my concern is that its listed as a one bed one bath.

Second, it's only one thing you have to be concerned about.  

There are several concerns I have with this.1)  First, you went from ignorance is bliss to at minimum a very strong suspicion.  

Thanks Chris,I am new to this and may be using the wrong language....perhaps it's income tax that I am concerned with paying.