On the one hand, it could be caused by a water leak somewhere else in the third unit.

I found out after I purchased this house that the pipes from the baseboard heating registers or the plumbing pipes, either one or both of these burst in March causing a lot of water damage to the house.

I want a guy who is licensed, will warranty the work and carry insurance that will protect my property in case he messes up. flood burst pipe/fire/boiler blows up etc...but when hiring carpenter, painters or flooring people ...do I really care if they are insured or not. those folks will show you certificate of liability insurance ...which does not protect the guy from injuring themselves on the property. how much damage a painter can cause or flooring guy ?

I don't know your background but rushing into things in your personal life and business life can cause havoc on your financials.

Alternatively you have the option to serve a 30 day notice to quit for cause.

Chances are once she sees how much money it'll cost she'll be singing a different tune.Now as far as your rights as a landlord and hers as the tenant, here are a couple tidbits from the California Department of Consumer Affairs website (http://www.dca.ca.gov/publications/landlordbook/sec-deposit.shtml):"California law specifically allows the landlord to use a tenant's security deposit for four purposes:For unpaid rent;For cleaning the rental unit when the tenant moves out, but only to make the unit as clean as it was when the tenant first moved in;For repair of damages, other than normal wear and tear, caused by the tenant or the tenant's guests; andIf the lease or rental agreement allows it, for the cost of restoring or replacing furniture, furnishings, or other items of personal property (including keys), other than because of normal wear and tear."

However, if something happens at the house that causes a tenant to sue you, you will only risk what is held in the LLC that is separate from your property management LLC.I am new to all of this and still learning a ton each and every day but I wanted to share this insight with you in hopes that it may help.

"One of the most common causes of failure is the habit of quitting when one is overtaken by temporary defeat." - Think and Grow RichAs for mentors, I believe you are cultivating mentors by posting on biggerpockets.

Find out the root cause for the hot water heater not working.

If they couldn't pay their taxes and are now illegally occupying the property (assuming cause they have nowhere else to go) how would they ever be able to pay you back?