This doesn't need to be confrontational, but the conversation really needs to happen. 

However, by mentioning you are an investor and using terms like "I'm sorry, but..." and "I'm afraid that..." you present yourself as non-confrontational which will help her empathize with your position. 

If he's almost done, I may wait until he's fully completed the work before I confront him.

Looking to confront tenants regarding lease violations and pretty sure the process is not going to be easy and I don't want to write/say anything that could be problematic later.  

When I confronted him, he got very defensive.

Sounds like an excuse to not confront people on your own property.

The neighbor said that he knew that the neighboring townhome (the one they just purchased) was under a contract, so he suspected that something was not right.The next day my friends, after waiting for the “landlord” phone call all day, decided to go to the property and call the police to confront the "tenant" and confirm his identity.

Contact the landlord in writing and inform them of the situation in a factual non-confrontational way and withhold payment until the situation is remedied.

In landlord world, I think "hating confrontation" would be a huge liability where blunt, direct communication, is a HUGE STRENGTH that is not often appreciated in corporate America, especially from us ladies.

Confront reality.