This will greatly reduce the cash flow to a point where it's not too appealing, even with a higher gradual rent increase by then. however assuming with continued 3% rent growth per year, it will eventually cash flow nicely again 2-4 years after the tax starts, assuming rents and expenses all grow at 3%.What do you think?

He would eventually pay, inclusive of all late fees.

There will be a counter spin, PR campaign eventually, to assert there is no ridiculous nationwide anti-trust conspiracy screwing home sellers. 

When you use a Realtor (especially one who invests themselves, don't fall for I'm an investor 'friendly' agent..of course they are, most will take a sale wherever it comes from and by shear numbers, they are bound to sell to an investor eventually.

You are starting a new lease with these tenants, so basically you can charge whatever you want, including pet deposits and pet rent (assuming its legal to do that in your state), and increase in rent (again, some states limited how big of a % you can increase it).Its the balance of increasing it closer to market and protecting yourself for eventual damage by having pets in your units vs inducing a vacancy and starting over.....which can be scary but often its a good thing when you take over someone else's tenants. 

Our current focus is working on 1-4 unit fix and flips, but eventually work towards being able to refinance properties and keep and cash flow them.My question is  tailored on the the way I should structure our relationship for the legal and tax base purposes.Should I secure the deals under my business and pay my partner out of my business operating account?

@Douglas Rosenthal hire an experienced PMC.You're penny-pinching, so you won't do that and it may eventually cost you dollars.But, since you asked: advertise on GoSection8.com website.

@Jonathan Klemm   My plan is to eventually turn the two units into a SFH, which I know would definitely require permits. 

I think it will be messy at first and eventually, the industry will fall into a new normal.

Realistically, I plan to just list the opportunities/shop the opportunities to my sphere, pay my debt off, and eventually be in better shape to do another round.