During the first year of ownership, the Smith’s building delivers the following financial performance: Total Rental Income $ 40,780 Less Mortgage Payments $ 16,210 Gross Income $ 24,570 Less Operating Expenses $19,836 Net Cash flow $ 4,734(Here is the first of the shortcuts: the above mortgage payments of $16,210 include the principal as well as the interest.

The “mediation” opened with the claimant’s financial demands of $65,000.  

Who is financially responsible for doing the work and replacing the engineered wood flooring? 

You may choose to do that now and avoid greater financial losses or you can wait till she actually stopes pay rent.When did she move in, how long has she been your tenant.My guess, as Steve noted, you are facing a professional tenant. 

My biggest motivation for doing this is to be able to achieve financial freedom, hopefully within 10 years, so that I can focus on other things without being too preoccupied with money matters all the times.

I have a lot of experience with project management, sales, financials, etc.

Also, before you make this kind of investment, you should consult with your tax guy and your financial planner.  

Not really financially wise investing.

There are many programs to get owner-occupants properties at a lower price (FHA, VA, etc), but not many financial products to help landlords get started.

My advice: keep it in the bank right now and get more financial education.