The unit was completely dirty, damaged and looked like a fixer upper.

I'm still up in the air.

Maybe best to wait to see whether Berkeley's brain damaged voters pass anti homeowner ballot measures. 

I’m active duty Air Force and maxed out my VA loan with three properties.Birmingham has some cheaper properties, but may not bring the cash flow that STRs in Florida might bring.It all depends on your timeline, numbers, funds, and comfort level.

If you win, they will have to pay the extra expense of the filing fees, etc, on top of what you say your damages are (which would be the cost to hire someone else to complete the job).   

Any suggestions on how to legally put Damage Deposits into a CD to gain interest? 

If you have a BAD tenant experience on this property as a rental and lose several months of rent and incur substantial tenant damage that is all coming out of pocket whereas if you had even a handful of rentals the performing rentals and the monies budgeted for capex/maintenance/vacancy will carry that sort of loss.

They don't inspect and only discover damages three years later when the tenant leaves.

I personally like it when there is a IRS lien scares the uninformed away and much less competition .. it also keeps those that MUST get a HML to pay off the cash they invested as quick as possible..

Like @Alan Asriants and @Matthew Paul said location, location, location, an area during the day and night are very different things in Philadelphia.While the cashflow might be great, the greater the risk the greater the reward, but there are still plenty of other areas where you can get 200-400/month without being near the largest open air drug market on the east coast.