A portion (or all) of your lease payments are credited towards your down payment if and when you do exercise your option to purchase the property.You can then (make sure the lease option explicitly gives you the right to do so) rent the property out and manage it.

What we realized is that we had expectations that we assumed were standard practice.

@Paul Younger do you practice in Izard County?

question, best practice is to put it on Sch E if you own it, Sch C if you don't.

Here in the Northeast, anything built from 1980 and newer is considered practically brand new, 1950 to 1980 is considered "newer",  about 1900 - 1950 is just sort of what you expect, and anything in the 1800s is considered old. 

All theoretical from my perspective as I have just heard and read that, never practiced.

@Ronald Rohde - That's a good point but as a private practice owner and real estate agent, I'm already receiving those midnight calls and texts and around the clock questions, emails, etc.

If you can't see that, or want to try to just paint them all with a broad stroke of being lucky (and some of them were, no doubt) then I can't really help you out by sitting down and showing you examples as you are literally surrounded by them.Many ways to make returns in RE, cash flow being only one of them ... and no I'm not saying anyone should ignore that one, just consider it along with the others, over the entire lifetime of the investment ... this is sound practice in any market IMO.

-Tenant has recently contacted me to state that they would like to exercise their option to renew.

To have a brokerage just for your own deals is not practical - unless you plan on doing 10 million dollars worth of volume every year!