As you build your portfolio (you have to buy #1 before you buy #2) your income will increase, your net worth will increase, and there are always options to refi and take some cash out of performing investments to help secure the next deal. 

The couple is behind on paying me rent by a few hundred dollars, and the guy wants to apply his half of the security deposit to pay part of what he owes me (and pay me the rest in cash).I'm a bit overwhelmed by the newness of this.

Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks).

The lathe is not securely fastened to the structure, potential moisture  problems, foundation movement, etc.  

Next time work towards getting security deposit in hand once tenant is approved.

Could someone come in and pay off there first mortgage and act as a private lender for the deal and hold the first note.

Do you quick claim deed to the house to verify your investment is secure by the property?

@Derek Clifford,Do you know any private lenders the current renters might be willing to trust?

Soooooo

I'm wonder what you folks feel is the best option for flipping.... What do you use. Let's say you have capital for down payment for both and good credit scenario

A. Conventional loan with no prepayment pena...

Rate is higher than a traditional bank but lower than private money or hard money.