There's a lot of red flags on this and I would personally move on.If you still want to pursue it after looking at their background and credit report, might I suggest  a higher security deposit or pet fee up front.Still, there's always better tenants out there for you.

I have a few leads now but next step is finding a private lender.

My ideas at this point are to remove the deck and make the room areas a step down, and recreate the deck later as stairs to access. 

That's one of the next steps. 

If my area doesn't have the best market, but I find a good deal, should i still pursue?

These simple steps will serve and protect you for years to come.

Screening IMO is the absolute most important step--- think about it like dating, and you are getting ready to marry someone!

It runs differently, and, if you are taking other people's money, you had better know exactly what you are doing.I'd recommend stepping up to some formal education. 

I will not pursue this property because I think it may be a little out of my league.

If we were to agree to a price, do 0 down with the purchase price at 5% for 5 years with a balloon payment at the end, what are the basic steps I need to take?