I have a pretty straight forward return with a W-2 and a K-1 from an LLC. 

I am a 1099 buyer and a mortgage lender as well.

One of my friend happens to be a RE agent, landlord and a property manager himself and he seems to feel that as long as she pays rent on time and does not create nuisance, not to worry much and just keep do a quarterly property inspection.

Do you want this thing to be the tipping point for them to leave and you have turnover costs and a vacant unit? 

It is an area you are likely more familiar with and closer to which could be helpful for your first investment and as @Sarah Kensinger metioned, you may be able to do a MTR.  

I'm in South Loop near the Loop, lake, Grant Park, CTA, and a variety of hospitals / schools, so renting out the room on a mid-term basis (32+ days) for a premium was the best strategy for me.

Now, over a year and a half later, he sent a certified letter last week demanding the security deposit or legal action within 30 days.Please advise. 

Hiring a contractor to assist with repairs and a property management company to manage rental.

I just used cash to build my first 3 specs no loans at all.. once done and sold then I went to lima got one loan from them.. then went to local bank ( much much cheaper) and got a 3 mil  guidance line and went on to build 30 or so in charleston.. you have to prove the model.. its not like buying a rental where lenders look strongly at your fico  fico is required but not the main consideration like and investor loan and all you need is 20% down or 30% down and a few bucks in reserve that wont fly with spec loans..

I just know I don’t have the knowledge yet to find a deal and a lower price point is appealing for sure.