I know I need to hold the security deposit in an escrow account.  

You take a deposit per usual and charge them for any damage beyond wear and tear.

Earnest Money DepositAnd if you want to cover all your bases, you can also consider saving for an earnest money deposit (EMD).

Let them move in with a deposit and first months rent. 

If they pass the screening, also find out who is paying the deposit as that is the person you will be returning it to once they leave.

Having watched many prior co-workers get paid, cash their check at the casino, and promptly deposit it all into a slot machine I can tell you with pretty good certainty that casinos don't have a positive effect on disposable income and good use of the existing income in the area surrounding :)Are there solid local employers OTHER than the casino in a 15-minute drive? 

What do you do to ensure that the tenant is responsible for security deposit disputes since that is the largest reason for owner lawsuitsHow familiar are you with the newly changed laws that can affect you the owner if they are not used correctly?.

From what I have seen, the typical remedy is termination of the contract, refund of the EM deposit and all expenses incurred by the buyer during the failed transaction.

My buddy sold for ~$500k over its existing use value and no contingencies and did not even convey existing tenant’s deposit.  

Sellers rarely mind the low deposit and extended closing period due to the nature of the property, or at least they can be made aware of the fact that their lot has issues that will take MY time and MY money to solve and then they come around.My terms on the flip are: Minimum 10K spread between purchase and flip value.  1-2K deposit upfront to hold the property for 7 days then the deposit becomes non-refundable after the 7th day and the buyer has the same amount of time that I originally negotiated with seller typically 8-12 months(its a purchase contract but because of contingencies its essentially an option).