With an option fee of (3%) $3450. 1/3 going to seller.Should the buyer exercise at the 2year mark. 115k-3450=111550 loan amount.My debt service for 2 years and 1/3 option fee would decrease the purchase price from $110k to 101530The difference between 111550 and 101530 is $10,020 profit to me plus $2300 option fee received, and 2years of cash flow $7030, total profit $19,350.First, am I leaving anything out to realize this expected profit?

If you qualify for the 121 Exclusion, in other words you can say that you have lived in the property as your primary residence for at least 24 months out of the last 60 months, then you and your wife would be able to exclude up to $500,000 in capital gains from your taxable income. 

Selling securities creates a taxable event and the IRS will want their cut, regardless of what you plan to do with the proceeds. 

Every time you sell stocks all profits are subject to capital gains tax which further decreases your working capital.

In this case, many prefer to hold their hard RE assets in taxable accounts and notes, liens, and other paper, which are not tax efficient, in their self-directed plans.

Yes, its absolutely taxable income.  

For example, if the area is changing from high-paying manufacturing jobs to service sector jobs, potential tenant disposable income will decrease and property prices and rents will fall.• Landlord friendly laws and taxes.

The option consideration is not taxable until the option is exercised or when it expires.

I think you will find that the premium will decrease for the rental policy. 

Certainly every day that these properties sit without being sold there loss of money that could have been reinvested and the property's value might decrease due to neglect?