How about you do your 'simulated engine failure on takeoff' well above the ground. That's how I learned procedures for engine failure in the overshoot. If I wasn't quick or accurate enough in my control I'd crash into the "ground" at 4000'. Perhaps you could simulate the take-off by having the student do slow flight in take-off configuration, at a given altitude and then at rotation speed "climb out", following the same profile of power reduction as a takeoff. Then you can fail one ten feet above the "ground" and still have plenty of room to recover.