I’m just really surprised that the tenant is not taking the option to break the lease break with a $ number offered (1 month rent plus reasonable amount for parts of house he wasn’t able to use) that is within a couple thousand dollars of what he wanted anyway.  

Can try to reposition to Class B, but neighborhood may impede these efforts.Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years.

We also try to keep a few hundred thousand in reserves.  

I say this because every investment is an opportunity cost, and if you're going to take money out of stocks (whether in a brokerage account or 401k) that could be earning 8-10%, you should have confidence that your acquisitions are going to perform better to account for the additional risk. 

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

The issue is our land value is high, so the structure value is low compared to the overall property cost. 

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

Taxes, costs, eviction complexity, etc are going to be a much bigger factor in your success than anything else.

2) Set up a HELOC to cover the cost?

The tenants were more interested in that than turning on the already-installed alarm system because there was no monthly cost.