I chose to forfeit my deposit and walk away from the project.   

You could also consider a small security deposit as well.

I am leaning to saying no but I may ask for additional deposit PLUS additional rent.

Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.5.

Using my own funds to deposit to the LLC (Is this step necessary?)

You'll also need a way to collect your security deposit(s) and rent.

The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations.

He wants to get back on the property ladder and we have talked about me putting in 50% of the deposit needed to purchase a house.

Mainly, you'll want to let the potential partner how much of the contract deposit you'll be contributing.

I would expect to be getting their $1k deposit at closing to offset damages which leaves $5k.