As you grow and expand and your business gets bigger and you gain more connections and insights you will naturally fall into other categories.  

What scares people about the Southeast is natural disasters (hurricanes) and wages are not particularly strong.

So in the event they obtain money through a house sale (maybe their aunt wills them a house and they sell it) or there's an insurance claim (they slip and fall somewhere and win a lawsuit) your friend will get paid due to the lien being in place though liens do expire after a few years (so you will need to file to extend the lien at expiration)Also, I'm told a lien of this nature shows up on their credit report and is 'a thorn in their side'. 

These laws may also may be a source of funding for the cleanup.Also, I wouldn't leave it up to a construction contractor to determine the nature and level of effort for the cleanup that would be required.

Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state.

After some thought, we figured we would offer to just buy it from him, with the idea in mind that we could supplement much of our mortgage with the detached guest house.After lots of conversations with a lender, I was pre-approved for the ~$300K the owner wants, and I was able to work out a Conventional loan with 5% down, owners pays 3% towards closing costs (he’s a good guy and agreed).

The business plan should have been developed to do it with natural lease turnover.

But, when you purchase an investment property with the goal of ultimately using the cashflow to supplement your own income, at which point do you stop saving up cash reserves in the bank (vacancy, disaster, capex, repairs, etc.) and start diverting the cashflow to yourself?

(I do not stand by the following information, please perform your own due diligence to confirm its accuracy)Affordable Housing Acquisition FundThis fund aims to ensure the following:Tenants shall have safe & habitable living conditionsProperty owners will not face financial hardshipsPrevents a mass exit in the affordable housing market that results in 2008 V2.0Applicants must adhere to the following guidelines:Owners may not sell the property without notifying HUDHUD must approve of the buyerHUD retains the ability to disclose to the buyer the seller's intent either to sell or transfer the propertyHUD will only allow the following buyers: Non-profits, public housing agencies, Co-op housing, community land trusts, or a state/local gov't agency specified by the Secretary of HUDHUD will provide purchase assistance to eligible buyers up to the full purchase amountThe agreed-upon sale price between buyer & seller may not exceed Fair Market Value (FMV)It must comply with the Cranston-Gonzalez Natural Affordable Housing ActTenants are only subject to just-cause evictionsTenants may not be discriminated against based upon the same criteria in the previous postResidents of affordable housing shall be provided the following free, voluntary services:Healthcare, employment/education assistance, childcare, financial literacy educationTenants shall elect a resident board/council that will control the living & operating conditions of the property (HOA-esque?)

So I would be prepared for them to say 'no' to any request for funds...that would defeat the cost saving nature of having the property owner maintain it instead of hiring a service.