And if we try to withhold any of the deposit, the burden is on us to both prove we followed the letter of the law and that the damage done to the apartment warrants our withholding the deposit. 

Basically there are fewer people to compete against and bid the price up, with 3 and 4 units compared to single and 2 families.The benefits from owner-occupying a multi are substantial, enough to warrant a special term for the strategy - "house hacking" - and it has extensive coverage here on Bigger Pockets.

As mentioned by @Chris Tarpey, there is not a lot you can do while the lease is still in effect unless they were to do something that would warrant an eviction.

To be fair, I had never met this guy and other than our conversations I didn't have any facts so the skepticism everyone is sharing is probably warranted.

You could do that....however with 1 owner controlling the whole project they would be non-warrantable condos.

In my recent  experience going through this it depends on if the condo is considered "warrantable".

I will say its not uncommon for them to get removed as a lot of projects just to get to the size that they warrant them.

This project might warrant doing some digging.

If they get a warrant to search your property for drugs they don't normally let you know either,  not even after.    

Fortunately the damage is isn't enough to warrant me actually being interested in making a claim with my insurance.