I reached out to her and her referral but got no additional money apart from the security deposit and her first month's rent at move in.  

If your offer is less than he/she owes on the loan, the additional money would have to come out of their pocket.

And then renegotiate with a new lease.I could instead add it temporarily to the 'common/landlord' panel, but that will probably require a panel upgrade, which is going to cost more than a few hundred $$.Do you have any suggestions on how to handle it? 

The newer places can and probably are more expensive, but they also offer great amenities in most cases and some people are willing to pay extra for those.There are additional strategies you can take. 

I would pay him higher than average rent in addition to a fee to have the right to purchase. 

In addition to education, networking is the key.

If he had a property, financed it for $80k, sold it to you sub to with no additional cash, his cap gain taxes are based on the $80k sale price.

Doesn't this put a cloud on the title in addition to put the seller in breach of contract? 

There are additional knobs that can be tuned here so make sure you know what they are and where they're ponited.

In addition to educating yourself jump in and start evaluating as many deals as possible.