What about the third option: not able to be deducted by both parties?

Make both parties (you and the owner) happy and have sound mind knowing all necessary steps were taken and no one feels screwed.

Hint: this is now the third time its come back in my lap.

As I mentioned I would strongly consider adding a third bedroom to the other unit if the current tenant is to move to increase rent as well.

I believe they have ramifications for releasing these to unrepresented parties, as well.Also, the CAR forms can unnecessarily complicate some simple off-market deals and really create strict timelines and requirements because of the hard-coded language that cannot be redacted. 

I Just let the necessary parties know that I'm using Hard Money.  

While he's partying, work on yourself and your future. 

No one party is really benefiting to a greater degree to cause a conflict of interest.  

Seems I am late to the party for anything of better quality as returns are slim to none now. 

If my tenants talk about this to other tenants and these people express approval that their landlord is honest, that's a good mark for me, and my tenants have feedback from third parties that they're getting value for money out of living in one of my properties.You're running a business.