He has a larger portfolio (as per OP and evidence of one other property).

Securities are defined by the Securities Act of 1933http://www.sec.gov/about/laws/sa33.pdfThe definition is:The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoingSo, are loans securities?

Lower income workers are the first to be laid off in a bad economy, which is evident when you look at white-collar versus blue-collar unemployment.

The seller might tell you that every roof needs to be replaced "down the road" as do water heaters and given this, he doesn't see the need to offer a "discount" for future repairs/capex.So, other than discounting the typical needs of stabilizing a property from the beginning and unless something significant (like a roof, etc.) needs to be repaired/replaced pretty much at the time of ownership change, how far into the future is necessary to calculate on a pro-forma and to evidence a seller about its significance?

But I've seen no evidence it either a quick or an easy way to earn an income.

A lease or other written evidence to verify occupancy is required. 

Typically, a recent arms length sale of properties that were advertised for sale publicly is deemed to be persuasive evidence of the property's actual market value.

If so, the envelope is your evidence of a good faith effort to provide this to them.Lessons learned....NEVER rent to family or friends. 

Tenant shall provide Landlord with evidence of such Insurance within 1 week of Lease signing, and annually thereafter upon policy renewal.

If you have a strong case with evidence of cover up, then you may win, but if you lose, you are out more money.