I realized there is a little I can do now but I’m looking for recommendations to avoid this in the future.

If the tenant ever realized that, they could sue you for all rents paid for their entire occupancy, and in Philadelphia, they'd probably win.

Then, I did the math and realized that I made a mistake and the following charts show that with a $500,000 down payment my friend will earn maybe more than $1.5 million in 5 years.You have to do the math.

And in CA laws in many counties have changed see  LA county that those lots created before 1920 must meet modern lot standards to be recognized again.In Portland were I work its much easier and its one of the ways to really makes some good dough when the seller does not realize they are sitting on multiple lots that just need and over the counter lot confirmation to revive the existing lot and make it buildable.but in your instance, it sounds like At the county / city level they are not recognizing the underlying lots.. there for the contract cannot be prosecuted and closed as written. 

I didnt realize what credit scores were calculated from.

It's great you the options you have with the $300k, but realize it is difficult to try to figure out what is the best path to choose.  

“Rental housing providers realize people need housing.

Real estate has high transaction costs - most folks don't realize to buy or sell a property it costs about 10% of the sales price (6% commissions and 4% transaction fees).Real estate is susceptible to harsh weather - during hurricanes, floods and freezes you can have significant property damage.

Add that to the equation and it's easy to see how in a low cap market, you could realize very high returns. 

My plan is to leave as little of my own money in the deal as possible and I highly doubt that going directly to a local bank or credit union will get me there since they would inspect the property and realize it needs some work.