I have a property management and maintenance solution to offer them as well so it is basically hands off for them which is why they are interested. 

By contrast if they have solid credit and a reasonable DTI, here's your solution.

@Matt Berklacy There are a bunch of "gurus" that offer the lease option solution.

It seems like you already planned well on your own.You will get lots of insights and advices from other BP users for sure but one thing I like to tell you is to look for technological solutions a lot.

Very trendy with a warm modern stye, all tile floors throughout entire house, solid wood cabinets with soft close, quartz countertops, stainless steel appliances, walk in shower with rain head fixture, double vanity master bath, walk in closet.

I am sure some others will provide great advice on what solutions exist.One key will be getting your wife onboard.

I looked up potential solutions - cheaper than eviction, maybe provide your tenant with some of these "sploofs":"To mask the smell, many people construct what is known as a 'sploof' – a simple device through which the smoke is blown in an effort to mask its smell with other smells.

We are all just making assumptions of what construction type and issues you’re having and trying to offer suggestions and solutions based on assumptions.

Is there another creative solution to funding the rebab portion of this REO deal using money we already have in 401k, traditional and Roth IRA?

There are some nice ones out there too which can help with any rental modernization undertakings, but again, regardless of the tenant, I'd recommend making the repairs as soon as you can.