The tenant fails to pay their last month's rent and leaves the place needing new flooring and paint.

That's what you will fall to when you fail, the higher that floor is the more room you have to succeed.

I know some banks require it to be located far away as a vacation home, and to be single family.

There is no magical way for him to receive the income either, you can simply just pay it to him from the bank account.

For some reason they called back the inspectors even though they had not finished all the recommended repairs.. so we failed a second time.

Thanks Ned, Short answer to explain it, I did not know they were around back then, just found out now when we are coming back, a little background, when I started in 2005, I was a child :) 28 years old and thought I knew it all, all, all :), did not know about hard money lending, only new about bank loans, and Home equity lines of credit, did not know where to find more money, since I did not have much, I would rely on what I could get from banks, loans, credit cards and was not always that great, it was a learning experience.....and Wholesalers, I did not know that even existed, everything I would find back then was already on the market and through a "friend" agent, MLS, FMLS and all those, nothing like what we have today.

It can be a great alternative to traditional bank loans, offering flexibility in terms of both loan structure and timelines.

Our bank offers Deposit only cards cards (looks like an ATM card) that we give to each tenant with their name on it.

Having a little money in the bank from a day job is a good thing. 

In your situation, when the time comes you think you are ready to purchase, go to your local bank and tell them you want to get pre-qualified.