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). 

First off, the odds of you ever being sued for anything more than a security deposit dispute are extremely slim.

Im imagining there would be a heafty interest rate, deposit of some type and perhaps 1-3 point required.

And here is the main reason why: your tenants will always match your property.

Or a dab of caulk and color match paint to the brick and you'd never notice it unless you looked for it.Is the outlet installed in brick or drywall?

For example, you buy the place and the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller claimed.

Includes practical advice on marketing, screening, leasing, handling lease violations, termination, security deposits, and more.

Therefore, you should do reverse engineer and find out the niche you like doing long-term, then match it geographically.

They would have to figure out how to reconcile that to report a property that they havent been reporting.So basically there's a mis match between who the IRS perceives to be the tax payer for the property (you).