I have a relative with a college rental and they have had so many headaches/small claims court for damage (even w/ cosigners.)

It's dressed like a mortgage.

But really, if they've been good tenants and you don't have any vacancy and they don't have any actual damages you need to fix between the two tenants, I'd probably give the deposit back, or at least a portion.

This is too much brain damage for residential properties, 10% of the purchase price is customary as an option price, being more you'll get into issues of a disguised sale so a tad less is better.What both of you are suggesting is trying to sell at an unknown future value, in that case now is not the time to do an option.

Worst case, you should get a set-off of the amount of unpaid rent against any damages the judge finds you owe (which don't sound significant).

No exceptions.What are you going to do if you accept the deposit as the last months rent and then there are damages exceeding what is left of the deposit?

If it were me I would get enough down to cover their default and any damages, establish an interest rate (double your rate if you have a mortgage) so you have a cash flow coming in and keep the loan length at about 5-7 years.Again I don't know a whole lot about it but I hope this helps a little bit.

This will reduce the brain damage of trying to do separate loans on them.

If landlord is asking for lost rent and damages etc. judge usually throws that out and just evicts.

Isolating them from predatorial law suits is just being business smart, and the LLC entity performs this act, limiting damage to assets held by that LLC.