If I do invest local I can replace my capital by saving for a year and a half… does anyone have any insight? 

The document says if you leave you owe whatever balance minus what the LL collects from the new replacement tenant.

We are interested in tearing it down and replacing it with a three car garage with two separate living units above it.

If it's polybutylene (flexible black stuff), plan to replace all of it before anything else.How's the roof?

I save thousands of dollars from not having to repair and replace dishwashers. 

The costs involved to fix this situation included mold remediation, potentially replacing some of the water damaged studs/joists, and replacing the drywall.

Go ahead and clean or replace with new, any window curtains or blinds.Add up the cost of materials, and charge him a bill for them.

The tenant just indicated that she wants to stay for her third year and offered to pay to have the flooring replaced in the main bedroom.

Wanted replacement property in hand before selling investment property in WA.

I could most likely put some money down in a FHA loan and get a mortgage, however I worry that depleting my savings would put me at a high risk of not having cash for needed repairs should something serious need replaced.