You will need insurance and a trust account for deposits, unless you using you broker in which case they are getting 50% of leasing fees and management fees.  

Our rentals are generating cash flow and I don't know where else I could match that.

There will be a debit from the seller for any security deposits and advance rents, etc. 

The reason you lost equity is because appraisers are looking at comps that have sold in the six months, similar square footage, matched bed and bath count, within 3 miles of your property.

Very general question so "yes, it is possible" is a very general answer to match.

In my experience half of the  properties don't match public records and that's in your advantage since the taxes on 3/1 would be lower than 4/2..you should always check with the county to see what permits have been pulled on the property.

So if you could match the existing flooring you might take this route to get long life out of something “less cheap” looking than lvp. 

And I've matched my mindset to the dragging on of this project.

What do I do with his security deposit?

I agree with Scott to make sure it states this is a non-refundable deposit and once they move in, it will be transferred to their security deposit (ie the deposit is the full amount of the security deposit).