Google maps might show you a house that burned down a year ago.Title chain is also very important. 

You should have ran the numbers with the rent at 1250 and only offered based on that, any higher rents are just extra icing on the cake. 

I'd read this article before you do anything, including the comments (lots of extra info)-https://www.biggerpockets.com/renewsblog/2013/08/1...Just so you know all of the implications of going the LLC route, especially if you live in CA.Hope that helps!

I've got some extra cash but I don't want to be cash poor with a new property with possible unforeseen issues.   

You'll burn through 1/2 of your cash-flow just to visit the property a single time. 

I'd rather have the extra security on the property, however I don't feel the $89 at home depot are very good, so I'd recommend a stronger door as my units previous had the $89 doors and they look pretty unsafe as people can cut through them pretty easily.

Am I legally allowed to increase his rent a little to cover the extra water usage? 

Then later on refinance out to get your leverage up on it and then use the extra money to go buy something else.

But I plan to tear down part of my house, so re-painting and fixing the damages would cost almost $10k, which would be extra cost and it did not make sense to me. 

That is one market correction, price reduction, or sitting on the property for an extra 2 months.