Only issue with this is that if owner needs money, you'll likely have to come up with the difference between the loan balance and the value of the home as a down payment. 

. - so I guess I need to estimate what those would be - he is in his 70s and has uncles and aunts that lived until late 90s and one until 102 when no one did) and a comfortable retirement (he is extremely frugal so that's not an issue).

Wyoming is another place to commonly form an LLC because of the low cost. 

They will place them with minimal screening and they cause lots of maintenance issues and do not pay rent in time.

I think you need at least $10,000 in reserves, or bare minimum at least enough to cover a month and a half of rent, utilities, and any unforeseen maintenance issues per property.

It is pretty common but there isn't much that can be done really.

An if they don't meet that or whatever other guidelines you put in place up front, then there should not be any issue denying applications, and maybe they don't even apply.Personally I would not make up conditions as you go.....have to treat everyone fairly.

One major caveat is the real possibility of being put out of your own home if you ever get into a domestic issue with a tenant - I know people who have ended up having to rent a hotel room while they got something worked through the court and their tenant lived in their home, because once you rent to them it becomes "their home". 

I'm very curious; it's not common to see new construction go Section 8. 

The majority of investors face these issues when hiring contractors.