However, I just want to caution you against getting into the habit of hand-waving whenever someone brings up an expense you don't have in your calculations, saying "eh, don't worry about it; I have enough cash flow to cover it."

7 habits of highly effective people The monk who sold his Ferrari

It is a personal habit.

I had a dream, which was not all a dream.The bright sun was extinguished, and the starsDid wander darkling in the eternal space,Rayless, and pathless, and the icy earthSwung blind and blackening in the moonless air;Morn came and went—and came, and brought no day,And men forgot their passions in the dreadOf this their desolation; and all heartsWere chilled into a selfish prayer for light:And they did live by watchfires—and the thrones,The palaces of crowned kings—the huts,The habitations of all things which dwell,Were burnt for beacons; cities were consumed,And men were gathered round their blazing homesTo look once more into each other's face...

I would say being more proactive, whether it is stating the house must stay in a 'habitable' condition, or with regards to walkthroughs and repairs is mandatory.Now as far as moving forward, I'd agree that you would likely want to keep the tenant, BUT and a big but you start to advise them that some changes with regard to the cleanliness and repairs of the property are coming. 

That was a hard sell for me but I realize that I was making too many justifications for poor spending habits. 

This number is vital to knowing whether 40k is a good deal or not.

I see unexplainable debts (possible amounts owed to prior landlords) and late utilities as bad, but the rest is just the poor personal fiannce habits or life circumstances that make applicants renters rather than owners.- Having roots in the community, normally having lived in that neighborhood for several years, or in this case being close to her parents adds screening points.

There are probably State laws that apply as well as local ordinances in some cities.Although I'm not 100% sure, I THINK a landlord is required to keep the rental "habitable" which I think includes things like hot water and a heating system but not things like lawn care or air conditioning. 

That is, is the work you are doing just a few punch list items, but the house is essentially habitable and ready for them to move in?