Cleveland is a solid market, I also like a similar market of Dayton, OH which is 50 minutes outside of Columbus and has similar cash flow with more landlord friendly laws.

I believe it's my right to keep the deposit, is there some law or some thing I don't know about that would say otherwise? 

In other words, these sources claim that you can't buy a property solely for investment purposes (like renting it out) without living in it yourself.Is anyone familiar with this law or regulation?

The squatters rights laws in California scare me to death! 

As a side note for education expense, you may deduct education that maintains or improves your current job skills or that is required by law or your employer - as long as the education does not qualify you for a new business. 

States with landlord friendly laws, low property taxes, job and population growth, and low insurance premiums are all good places.

As a Realtor, your contract should protect you (it does in PA)A hold harmless agreement doesn’t override state laws. 

Theoretically, if I did enough work so that it fit my needs and lived in it as my primary, would I be violating any laws or aspects of an owner-occupied loan?

Each state has different laws with respect to what a creditor can attach to.

I've read up on local (Massachusetts) law/guidelines regarding utilization of security deposit but it's pretty vague in this regard.