And this substantial discount can give you room to do a quick light refresh (fixtures/finishes) and come out ahead.

@Ryan McGrath I think your first concern is to make sure it's a legal rooming house or to understand the steps that it will take to make it one - which I'll bet would include things like extra egresses and a sprinkler system.One incident / phone call / police visit where word gets back to the building inspector and you might find a big red "VIOLATION" sticker on your front door.Next, I'd want to do some forensic accounting. 

There is no place for a third room short of closing off the living room, or dining room. 

As a matter of fact, one of the parents asked me if the room is occupied by a female student or not.

Both of these solutions would still have a solid-sized living room.

(She can live there, and we can rent out the other two rooms)-Is there a way to put the property under my name/share the title with my mom instead of "buying" it?

That home is now a rooming property yielding $1400/mo

(Bad faith retention)Other things that have happened over the course of tenancy, which I understand has nothing to do with the Security Deposit, just wanted to give you the full picture of who I am dealing with: - She attempted to AirBnb one of the rooms, AND the entire apartment for when she would be on her boat (2 separate listings) without my permission. 

I've considered having them vacate in order to AirBnb each room.

Paying anything less than a grand you are betting on getting nothing than warranty issues.