Yes, that means he will have to give up his 3.5% rate (or whatever it is assuming lower then today rates) but it is what it is. 

It is nice of the state to mandate that flippers do this.  

It's stronger in court if they do it, nothing personal.

Based on your question, you have two core decisions to make, and they may conflict with one another - where do you want to live, and where do you want to invest? 

Its honestly going to come down to the numbers and what your end goal is?

I would venture to say very few landlords correctly hold their deposits based on local landlord/tenant law but as long as the money doesn't walk away and is not wrongly withheld from tenants its highly unlikely wrongfully storing the funds will become problematic.

Quote from @Kimberly Venable: It's getting the right education.

At R&H Capital, we’re always looking to connect with other investors, share insights, and collaborate on new opportunities.I’m excited to be here in the BiggerPockets community, where I hope to learn from fellow investors, share my experiences, and build meaningful relationships to grow our real estate ventures.

And you definitely do not need a license to be an investor.

Do you need to sell the house?