The area is zoned for a max 4/5 stories with 15 units total, 12 of which are market rate.Construction financing is secured as I have a relationship with a hard money lender who is interested in financing the project, but would need to assume the property next door to move forward with a construction loan.

But using a year lease will secure the income, or your right thereto at least, for an entire year.

As someone with limited capital who is looking for a MFR for his/her first purchase, I don't really see how this financing option could be a bad thing; especially if, like me, your focus is on cash flow.If I pick up a MFR on a 5/1 or even 10/1 VA loan, recycle the profits to bulk up reserves and equity then I'm paying less to make my property a more secure investment.

I was wondering if by law I am allowed to take what they owe me from their security deposit.

It is because the number of tenants/units corresponds to the amount of effort involved. 

Tip: Only accept a money order or cashier's check from the applicant for first month's rent and security deposit.

And they also must pay 1 months rent for securing new tenants (half goes to the agent that brings the renter on the MLS). 

The process is fairly simple just put in your advertising Sec8 ok and make sure they have a voucher that corresponds to the number of bedrooms of the unit.

You want to understand fees and the corresponding service. 

This list would contain the zip code and corresponding name of the municipality as well as a breakdown of the number of SFRs.