However, I've never done a rooming house before and wanted to know the best way to handle security deposits and how they may be applied to damages in the future.

These problems cause most landlords to sell and exit the business because it is emotionally draining - if you let it be.

Eviction.That said, I've had well off people that have caused me trouble too.

Even if the seller was open to the idea, he/she can only serve an eviction notice if there is cause.. and while NH is a pretty landlord friendly state, evicting for reasons aside from nonpayment of rent can be difficult (especially if there a family in there on section 8). 

We want to avoid potential damages of non-use: frozen pipes, HVAC getting funky, etc.

They may damage your property because they know you can't get any more money out of them and there is no consequence for their actions.Pros:  You already have  tenant in the building and you don't have to take the time or money to put new ones in.  

I understand your point, but most of these "surety bond" companies will go after the tenant for damages themselves, so they are still on the hook. 

The return on equity is low and damage too costly if you don't screen well.If a nicer place I would explore selling it and taking the (probably mostly) tax-free gain and invest or otherwise use the proceeds for their benefit.As Ashish points out, heirs would inherit the house at it's current value at death whether it's a rental or not. 

., This depends on what type of lender you are going to; bank vs private.Generally banks will lend based on BOTH property DTI AND personal DTI which can cause some major issues in underwriting. 

There seems to be some water damage in one corner due to some water that was coming down from a gutter.