With flooded homes do I need permits, inspections, etc or would just replacing the damaged dry wall, and flooring (fixing the damages) work?

Is there significant damage to the roof rafters or sheathing? 

Had water and termite damage.

In addition, if you have a "smoking deposit" and there is damage not caused by smoking, they may try to fight it since they "swear they didn't smoke inside."

We have photos of all the damages they left (which we have been fixing ourselves and did not charge for everything) and receipts for the cleaning we paid for before they moved in and after.

Trees banded and others with heavy damage.  

The city has given the HOA a deadline to repair the damage and bring the piping system up to code. 6.

A "professional" tenant can tie you up in court for the best part of a year, especially if you make even a tiny procedural mistake.Chapter 93A (the Consumer Protection Act) also applies to landlords and can award a plaintiff up to 3 X damages.

Top/bottom duplexes are not preferred to side by side because of noise, water damage, access.

Do NOT just treat this like, "Hey, let's go find some houses and flip them together to make some money", because that is not a plan or an actual business and is likely to lead to a damaged relationship with your friend.Good luck to you!