My partners and I just wired the earnest money deposit to the title company. 

You will need insurance and a trust account for deposits, unless you using you broker in which case they are getting 50% of leasing fees and management fees.  

There will be a debit from the seller for any security deposits and advance rents, etc. 

It is usually called wholesaling.Actually, you can put less than that on a house that is for sale (Calculate about 1-2% of the purchase price) and provide to the realtor that amount in check form which is called Earnest Money Deposit (EMD.It is cash-able once the executed contracts are in hand.

What do I do with his security deposit?

I agree with Scott to make sure it states this is a non-refundable deposit and once they move in, it will be transferred to their security deposit (ie the deposit is the full amount of the security deposit). 

First off, the odds of you ever being sued for anything more than a security deposit dispute are extremely slim.

Im imagining there would be a heafty interest rate, deposit of some type and perhaps 1-3 point required.

Caulk the brick outside, remove the outlet and ethernet connection, fix the wall, and withhold the cost from the deposit. 

For example, you buy the place and the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller claimed.