I’ve flipped in the dc area for years, right now there is just money & in the vast majority of cases there is high likelihood of losing money, right now the best investments in the area imo are buy & hold, I’ve even gone full circle and while I really liked value add for most of the last decade I think in a lot of ways new construction especially in more affordable markets (I’m personally a big fan of the eastern shore market) is a much better way to make money long term than flipping and brrring while I know they are sexy & certainly you getting a huge paycheck is great, there just isn’t any money in it right now, especially in nova. 

Hospitals will have to change more for procedures to makeup for the $ they lose for the folks who don’t pay their debts.

Even if it's a nice home, without being able to produce the income your expecting, it's likely going to be a losing investment. 

and I wonder if eventually they will move Airbnb this direction which will 100% lose my service.  

In another year there might be more tenant damage so you can either list the property with the tenants and get a lower price or list without tenants, get a higher price and risk losing cashflow. 

I do feel bad they are losing their home, and want to be sensitive to their situation, (and would like them to not trash the place.) what are the requirements for the cash, do they just have to get the big stuff?

Basically, you can use it for anything but be careful, if you don't pay it back you might end up losing your primary residence.

If he says no, is my only option to back out and lose the earnest money deposit ($6,000) or go forward with the purchase, knowing I'll have a $3,000 - $5,000 bill or more if I decide to do this later?

Those are the quickest ways to lose on turnkey.

Have you ever heard of a Landlord being sued by a Tenant and losing property?