If the owner wanted to sell the property after I fixed it up, I also want a way to recover the rehab costs by collecting some portion of the sale proceeds.

Memphis has a lot of pockets in recovery and many that are fully recovered and producing big numbers. 

I had a tenant who had the drug task force with 14 law enforcement agencies perform a raid on there rental which recovered items that lead to more than 2 dozen felonies.

That means you'll be working your a$$ off trying to stay above water cashwise, banking on a future event you have no control over to recover the cash you spent. 

You will never recover your cash until you sell the property. 

Use the deposit to recover as much as possible, then start fresh.

I am in the position to pay off my loans in full - at the moment this would consume 1/3 of my current savings, which I would recover after three months working.

This is important because you don't turn a profit until you recover your cost, and your cost is what cash you put into this.Take all the cash you put into the first property (DP and paydown) and the cash you got out of it (COR), and that gives you the cash return on the first property. 

Earning $100k W2 and only paying $700/mo for a primary should create a pretty good savings rate to help recover from hiccups.At this point I have 4 units rented (1 duplex, 2 SFR), my primary and I'm under contract on another off-market for my next BRRRR.

About 30-35% recovered so far, not to bad.