Once the sweat-equity pays off their half, they split cash-flow, profits, 50/50 like normal.  

2) If yes to both parts of question one is correct, my offer is coming back to the original asking price, is this normal?

There will be normal wear and tear and that will depend on how long the tenants have been there. 

Your assumption is that life goes on as normal for everyone.

Is this normal?

@Aaron Lemoine I have had section 8 tenants over the years and have not had the horror stories you hear normally.

@Jason Bott what is normal for liability coverage?

Jacksonville HUD will normally reach out to you 60-90 days before lease renewal regarding new rental rates.Rental rates are normally dependent on amount of bedrooms / bathrooms and neighborhood.An inspector from HUD normally inspects the property before increase in rent to make sure property is in good livable condition.

If it is the normal stuff I would let it be and plan for the needed repairs to get it occupied. 

Normally, we do not recommend keeping a home warranty after the first year unless you have an expensive item that seems likely to fail - for example, the HVAC.In general, property managers hate working with home warranty companies.