What's the best way to deal with the paint and still preserve the wood?

I wouldn't judge a property management company by their ability to preserve a high quality tenant.  

All investment strategies have risk and if you invest in real estate long enough you will have a deal that loses money, but going into a deal your first thought should be capital preservation and asking yourself what is the downside risk of a deal like this.

Dip into your CapEx fund, or preserve cash flow by going the financed route.

That is the sort of thing that you might have tried to preserve to allow for simpler tie in. 

When you're wealthy, you're more comfortable with lower returns to preserve the capital and reduce the risk of losing money. 

Also, using an LLC can preserve control.

@Ashish AcharyaWhat is the maximum equitable interest a buyer can gain while preserving the seller's heirs' ability to get a stepped up cost basis on death? 

Any suggestions on ways I can structure the deal to limit his tax burden, get him the cash he needs, and preserve what I can to find more properties.  

They live below there means, preserve capital, re-invest 95% of cash-flow, and know what opportunities look like.