I don't see why he wouldn't try to raise that remaining $120k privately, or go back to the bank. 

She raises her voice now and tells me, "He did buy the home and he did move out. 

The property is preaty nice and finish product is nice, big 4bed 2 baths.

I was in the same position as you.Find the deals, create packages for those deals, then go and raise the money for those deals with your investors. 

Just because we put in marble counters and high end flooring does not mean you can raise rent 300 over market for the area right away.

With all that in mind, I would agree that having an option may allow a tenant to raise this objection.

I'd double check that, or expect your taxes to be raised dramatically during the next assessment

I did a flip in Baltimore where we raised roof to make a large open space.  

If the NOI numbers are to be believed ($51k/year), it is selling at a cap rate of 2.2.I quickly looked at rentometer.com, and it suggests that average rents for a 2 bedroom unit is $1600+/month.Is this a really good potential opportunity (especially in the Seattle area) to fix it up a bit (if needed), raise rents, season it for a while, and sell?

Also make sure it's clear to her from the get-go that you're raising to market rents after her one-year is up so she needs to be prepared.