This is a terrible business practice hobby landlords tend to use out of fear of actually having to manage their business.

The fear of the unknown and fear of losing a lot of money can be debilitating so I have to get past that thus I am looking for a simple launching deal.

I certainly wouldn't invest or not based upon some fear of what might happen 5 years from now. 

Take the next step and push your fear to the side and make it happen.

My fear on this home as that we offered too much with all the surrounding home values being at 200-230k for 3/2's.

I would if there is ANY concern that their fears are reasonable.

Fear is what holds most people back.

This might put enough fear in him that he will leave.As for the dog issue, it's generally bad tenants that do this sort of thing.

Accept their notice and start marketing the unit and prepare for quick repairs and fast turnover.....let them go.You didn't screen them or accept them....no deposit (red flag)....below market rent (probably no increases in the 3 years)....and they are giving you their first test to see if you flinch....don't flinch.Yes its a business to make $$, but you also cant run a business out of fear....... the short term "pain" of vacancy can result in a long term benefit .

Making the EMD non-refundable goes a long way to allaying those fears, so does more EMD, a higher price, covering some fees ect.