You screen these tenants just like everyone else, no special treatment or exceptions, if they don't pass your screening don't put them in.

My friend wants to sell the property due to cancer treatments and lack of desire to own the property any longer. 

But if you do have to set it up this way, then you would need top tier legal and tax counsel to accomplish your desired tax treatment.

Do not have experience with splitting costs but I have got termite treatment done on 2 of my properties around 1200 sqft each (took less than 2 hours). 

Louis that it's hard to have anyone but the tenant provide treatment anyway and I can't say if your area has similar general practice.

If it is well water, you may need to install some additional water treatment to get rid of it. 

Which law applies, state or fed, makes little difference.The reality is that simply because you have a applicant that receives preferential treatment does not mean you are obligated to compromise your standards.

The flip income counts as ordinary income.If you have rentals here in Seattle, you need to make sure that flipping doesn't put you in a "dealer" status that affects your ability to 1031 or receive capital gain treatment on your rentals.

Septic/Treatment Plant/ Lagoon)?

Last tenant in one unit took out all the walls between treatment suites (with my permission), but the other two units show fine for medical.