They would pay us, the management company a small non-refundable annual fee that is basically a third of their traditional deposit.

I am not a financial advisor and not giving financial advice.Reading through your post, your concern is risk management versus paying down debt, which might be a solution.1.  

The tenants debt is about $1600 and goes up by 10% every month because the property manager keeps the late fee. 

Year 1: $2.25m Year 2: $2.35m Year 3: $2.5mARV: $3.5mEstimated Rehab Costs: $250,000-$300,000 (Rehab had already begun and I have all the contractor work orders)Exit Strategy:1. 

Estimated cost for a 1500 SF house $1,500 or more depending on your details.3.

They then tell you it will cost you $x (what ever amount they are trying to extort).  

If I rent out my current primary residence, I could generate over $1K in positive cash flow, so I'm considering moving into the rental property and handling the repairs at a more manageable pace.

This job should cost me about 1400$ for blown insulation.

Advertising costs run about $4,000 per deal if you use advertising.

In order to subdivide the homes to be able to get a conventional loan we would need to connect the houses to public sewer which is likely to cost $$$.