They say the next door neighbor was renting it (stop paying) for storage and continues to use it.

We all know that tenants who pay their rent on time and in full every month, tenants who get along with their neighbors and tenants who don't tear up the property but report legitimate issues DON'T get evicted for "no reason."  

I haven’t seen it personally but I imagine it’s some kind of “use us to sell or pay a penalty” clause. 

The same tenants that didn't pay you rent while they were residents likely won't pay even if you get a judgment against them.For better or worse, this is the nature of the business we've chosen!

The current owner pays $4K per year. 

Downsides are that he gets none of the potential upside when the property may be sold down the line, and we have to find a way to ensure that we build enough equity in the property to do a cash-out refinance when the loan term ends to pay it off. 

Some pay distributions, others don't, at least for the first year or two.

I am paying for the rehab with about $15,000 of my own $$ and about the same in credit cards.  

He's only warranting for two years.I wouldn't pay $40,000 to paint the entire interior and exterior!

If the septic is old and has several years left then maybe better to pay the connection fee - but if its in good working order - I would maybe pass on it as its available when the septic system is passed its life.