First of all it's very rare a seller gets a buyer's EMD deposit for buyer's financing falling thru.

Additionally, have a clear budget, factoring in potential repair costs, and ensure you understand the rules about earnest money deposits and closing deadlines.LLC for Real Estate Investing: Forming an LLC for rental properties can offer liability protection and may provide tax advantages, though the tax benefits are non-existence for rentals.

@Jerry Velezif a property is owned outright with no mortgages, debts or liens on it, then it can (potentially) be purchased on seller financing. 

No making sure the home was clean and ready for guest.

After getting the funds letter, which clearly states no appraisal was needed for this property, at the day of the closing, they came back and said no funds will be released until we get an appraisal.

Quote from @Michell Chase: It isn't a large amount but my concern is that if I remove the tenant in July I have no deposit in the event that there are damages to the unit. 

Did ask about specifics they are interested in and after 8 hrs of no response I reported it as spam.

Sometimes it can be difficult to collect and some landlords will keep any unpaid utilities out of the security deposit, though CA is one of the trickier states to do this in.

There is no way I can build this and come out overall profitable.

No.