I plan of tearing the home down and building a new home in its place.

Normal wear and tear is not covered so painting you may or may not include.

- I am planning to have a contractor tear out the current carpet and install new vinyl.

If it is going down your plumbing system and clogs etc. that could be problemmaticI also hope you are on public utilities and not a well and septic.anytime you have more people coming and going it will increase wear and tear.

They might be hoping that people will just accept that and pay it.A year in a new property is not very long so the place should not have much wear and tear or cost to turn over. 

And then convincing the owner to let you rent it and the wear and tear it will take on the property.

You can get lots and tear downs from 400-500K.

My luck is some kids would use it and tear it up on the first day.

And although @Michael Plaks makes a great case about tenant destruction (he doesn't trust anyone :), if your model was a short-term rental you won't have nearly as much wear and tear I would imagine. 

The crappy house still has the same guy in it , When he moves or the other 2 houses are built , I will tear it down and build a new one .