I will add that few Properties cash flow in current San Diego market at 75% LTV 30 year (15 year is even harder to cash flow) especially after allocating for cap expense, maintenance, and vacancies.  

Although their intention of paying up front originally.. was because they were allocated living expenses out of a trust while they attended college.

I spoke with my real estate lawyer and he said to look out for complaints from tenants about noise and the inconvenience of having contractors coming and going.The tenants have a toddler and an 8-month old.The only pros I think would be to lock them in for at least a year and the finished basement would increase my house value.Cons would be that the money they give would be allocated to the finishing of the basement and I would need to set aside money to pay down my monthly operating expenses.Any feedback would be appreciated.

Just allocate at least 10% of the rent towards any repairs throughout the year.

There is a difference in the market between an efficiency and a 2400 sq ft ranch style home.Another note, never have a tenant in a residential lease be responsible for maintenance or repairs (not including damages they cause), it is going to be a violation of federal tax law as to depreciation allocations and you can end up filing false returns as an owner.

In considering this, I did plan to apply part of the initial sum to a security deposit equal to one month's rent before allocating the rest to prepaid rent.

Many of my buy-fix-hold investors would pass on homes with pools unless we allocated to break out/fill in the rehab estimate for the same reasons.

They will not allocate 80k per year over 10 years for a re-image.      

Does your lease contain a clause allocating money received to money owed first and rent last?

If you allocate a spot for each person and say they can only park their it will be reduce some of the issues.This is one thing I have learned within the first few months of being a landlord.