A dealer in options to buy or sell property is considered a dealer in the property subject to the option.Example 3 from section cited above (not exact scenario but a loss; not sure they'd argue for preferential rate treatment here): A dealer in industrial property acquires an option to buy an industrial site and fails to exercise the option.

About one out of three of our Lease/Options, "fail" That is, the Optionee decides not to exercise their Option.

The 1% rule was never more than a back of envelope exercise at best.

So long as you aren't raising rent in retaliation for them exercising their legal rights, such as reporting safety violations, you will be just fine from a legal standpoint. 

There is nothing crazy about buying a $200k home for $175k(no agents) and selling it for 225k on a lease option and collecting on the spread by Option consideration, cash flow(not needed), and cash out when the end buyer exercises his/her option.

If the lender discovers the transaction and exercises this clause, you would be forced to pay off the mortgage right away.

That option is still an encumbrance on the lease, but the tenant has to exercise it. 

I agree, exercising patience and being a force for positive is the only intelligent self-serving actions I see here. 

Point beyond this exercise is to look beyond the normal. 

Started working on the exercise above as well this morning.