If you don't follow the process perfectly (such as by not delivering notice on time, or in the right way, or charging unfairly such as for normal wear and tear) you will be SOL and could even end up having to return the security deposit or even pay them more $ above the security deposit. 

However, after reflection, I realized I was becoming too emotionally attached to my first investment after a 15-year break and faced challenges finding reliable contractors.Update (5/17/23):After three failed contractor attempts, I finally secured a reliable one.

You are making a grave mistake by looking too far ahead right now, without capital, because that usually means you aren't focused on upgrading and securing your first asset.

An STR will look every bit as good as it did when it started - because it has to.Not only that but it is much easier for property managers to get repairs reimbursed when a guest damages something as an STR as opposed to when a long term renter moves out and outside of the security deposit, good luck. 

From what I understand, it's designed to replace a traditional security deposit.

We're considering using an FHA loan, but due to his credit score, we haven't started the preapproval process yet.What steps would you recommend we take to secure funding for our first investment?

That you can secure CONTROL and MONITIZATION of a property via a fractional capital outlay vs it's market value, better known as a down payment.     

My current focus is on securing my first deal under contract using PropStream & Off-Market strategies I am eager to connect with experienced investors who can provide insights or advice to help me navigate the early stages of my real estate journey.

Partner effectively, focus on securing your first deal, and build savings and credit.

Changing the locks and adding security to the home, to ensure he does not vandalize or damage the property.