DESPITE ALL THE INFORMATION YOU'RE GETTING HERE...THE 1 TRUE CONSTANT IN REAL ESTATE IS THAT "IT'S ALL ABOUT THE NUMBERS".

If both of those things are true, you can and should start depreciating it and deducting expenses related to it from that date.But then you did say "deduct depreciation against my personal w2 income". 

Yeah very true.

Depending on how bad the walls are, you are absolutely right, magic erasers vab perform miracles.

Thanks for the input this is also all good and true information!

It is true that you have to honor the lease, but in my case, the risk was reduced because it was tenant at will. 

This is true in CA - you can't discriminate based on source of income.  

While it’s still true that he doesn’t have liability as per the lender; he may be sued by the seller or new buyer if default occurs in our current legal climate.  

Looking back with hindsight you won't see that because hindsight is 20/20 but its true.

If you're planning to use it as a true revolver, an equity line of credit is probably still the best option, even at 10%+, because use of the funds wont be constant.