If the property costs $2M, then $200/month is a horrible return.

The key is to not overstate the income account, so the returned check needs to be accounted for correctly.I hope this helps!

All the numbers work out , the CAP rate is good , the Cash-on-Cash return seems above average .

@Yan Bekker  I echo the few points already made by @Jeff Burdick @Frank Sanchez @Ibn Abney - there is a lot of opportunity, but it depends on what returns you are expecting and how long you want to hold it.  

Given we will be living in one of the units, we won’t be collecting rent from that unit and as a result, our return is cut dramatically.

I should clear about $5400 a year comes out a 25% cash on cash return.

As long as you have 2 years of tax returns showing your income you'll be fine.

She is patching and returning everything else to move in condition (why do people have to hang stuff on every wall!!??)

Question: Do I have to return the security deposit back to this Tenant ?

Typically, conventional lenders will not count rental income until you have two tax returns reflecting that income.