@Don KonipolWe have done very similar on a quasi participation agreement where it’s a 12% loan and 2 points at $500k.

At that time, there were no rental caps, and the HOA documents I signed seemed to be generic agreements.

Talking to sellers and getting signed A-B purchase agreements is only a small part of what it takes to close a wholesale deal.

And while it is not my sole concern that the new "owner" avoid depreciation recapture, I wold like to structure any agreement that does benefit the current owner and his family as best as possible. 

Review their management agreement.

The way you described this, the smoking situation is also likely a curable violation and would require opportunity to cure pursuant to your state laws.In the meantime, give a notice of non-renewal according to your state laws and lease agreement. 

It’s also a good idea to create an Operating Agreement, even if it’s not required.

Step 2, lease agreement.

Biggerpockets sells a Lease Agreement Package under "TOOLS" at the top of your screen. $100 for a lease and several other documents, written by investors and attorney approved for your state.

I recently encountered a situation that left me feeling taken advantage of and deeply disappointed.Upon expressing my reservations about the steep cost of their course $8k,  I was pressured into signing an agreement by their representative.