Things like roofs or structural or things that make it livable....like missing toilets, missing heat, broken windows....sometimes flooring.   

If you are talking to the tenant direct and you make any adjustments, expect to be dealing direct on any further issues they don't like the answer of.

The possible big problem here, is that there is money involved and you cannot expect what is going to happen is going to happen. 

I would love any advice or comments on what to expect, best practices, good things to know, etc.

Without a binding contract its to be expected that he will cut corners.I hate that he has put us in this position, due to his negligence.No. 

There are some scenarios where you might be able to have a Solo 401k with part-time employees or independent contractors, but you'll also want to look at how long you'd expect to remain eligible if this applied to you.

I ran into this problem once where the contract is $50K below appraisal, and they'll only consider the contract value.The way it turned out, I got a lot less from the bank than expected, but in the long run, it did me some good as my cash flow was better because of the lower mortgage.

If this is the case, is there some reasonable rules of thumb to use here (e.g. how much should I be holding out for and what kind of a range in mortgage rates should I expect?)

While I don't expect an impending depression (likely no one could accurately predict the timing of one), I am just interested in being prepared against the remote possibility that we could experience a depression at some point in our lifetimes.

2: Yes I am expecting them to manage the note since I expect it to be a Passive investment.