That said, we are now considering tearing the house down and building our own primary house with a garage suite for my parents.I talked to the mortgage broker I used to purchase the house, and this sounded like a more novel transaction for her business.

By the time you do all that, it starts to make more sense to tear the place down and start from scratch.

The trash problem ONLY stopped when I returned the trash to the doorstep of the house for the critters to tear up on their property before their next guest.

Tear it down and start over using cementious backer board.  

He said in hindsight it would have been cheaper and faster to tear it down and build new on the lot.More information about old duplxes and the differences on my YouTube channel

The 2 groups I've housed have both trashed the property and left heavy wear and tear in just a few months.

It probably varies by state / city but generally speaking, you can use the deposit for any damages that are not considered normal wear and tear, and any unpaid portions of rent for the lease however it is generally only until the unit is re-rented so it is only for lost income. 

I had no idea until he started tearing my place up that he had a problem.  

My suggestion is be totally upfront with the landlord so they know what is going on and they can take the proper measures to assure they are protected, you are protected and you cover all insurance and wear and tear costs. 

Grandkids may say “you are putting us on the street”, while choking down tears.