And then there is rent to value that also uses “purchase price”.Cheers.

Then I buy a 1031 replacement property for $1 million but get a mortgage of $700k.

Get some deals under your belt, grow experience, and then go for bigger rehabs.

Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.2.

If answer is NO then run from it, don't have anything to do with that property but look for another one.

She then tells me that she can’t come up with the money for a deposit.

If you want to use the extra money for another investment, then do 10% down. 

Tenant: "Well, all right then."

Obtain proof of verifiable income, which you then verified?

It you think you can re-rent it in three months, then let her pay 4 or 5 months rent to buy out of it, with part of that being a credit for the security deposit money, assuming there are no damage deductions.