Hi BP, A little back story on my situation. My friends aunt passed and her family is now going through probate. They will everntually have to sell the home. they offered me the home for 500k and on market would be abo...

Hard money lenders are used to private loans, have vetted paperwork, and can evaluate the property, your lender, and you to make sure this deal makes sense for all and that everyone is adequately protected.

My idea was going to be to add a partition wall to split the garage so each tenant had the own side as well as added privacy / protection.

Most people setup an LLC for this for the added level of liability protection. 

I have tenants that I could give max allowed rent increase and they would still be below market rent and it is not easy to catch back up with the market rent.The rent increase you are considering (3% to 5%) should occur to protect your investment. 

If you have a STR subleaser, they are going to demand immediate repair, so their guest reviews don't suffer.

Nothing will ever go quite as planned and your deal needs to protect for some contingencies.

I believe you cannot prohibit them due to disabilities being a protected class and would be discriminatory.  

Make sure to let him know how he is protected, and go over worst case scenarios, and let him know how you will mitigate them.

People get a little protective of their tenants.