You don't want to make the mistake of a $6,000 renovation that only increases the rent $60 and will take ten years to recoup the cost.

@Isaac Hebron on your units, add more value, raise rents, increase the property value and you could be sitting on a gold mine!

I can't answer that because I don't know your market, you, or any of the other considerations.

Could I not just increase earnest money deposit from the next buyer buying from me?

The interior and landscaping are dated and could be updated to increase the home's value to the neighborhood median (close to $600k).Here are my ideas:1) move him into an apartment/condo2) buy the house as a purchase option3) renovate the home4) Sell the home5) buy a multifamily property in partnership with the father in law with the all the equity generated from selling his house.

I need to find a funnel for deals so I can increase my chances of finding that first deal. 

Although assuming some increase is a good idea,  I would be shocked if the taxes increased from 1020 to 2040. 

Price run ups continued through the summer but those increases drove demand away towards the end of June.

What considerations do I need to take into account here?

Help them tie their decisions to their costs or future increases.- If costs are high, send out a letter saying you noticed a spike and that you will be scheduling an inspection to look for issues with the property, like leaks.