Think earnest money, rents before they are disbursed to the client (you) & tenant's security deposits.

Yes, the debt is what I am leaning towards simply because the property isn't so big that I need a partner to secure a loan.

In any event secure the HELOC now when it is available.

I'm wondering what happens when you get n offer accepted and go under contract but cant secure financing with a HML.

Tenant's first offer to me is 2 months of rent ( last month, and security). 

I think  a promissory note secured by the property would then transfer title to you and they would have a note secured by the property.

He is willing to sign a 10 year lease at $7,000 per month with a $20,000 security deposit.

There were a small amount of negotiations around securing tenants in the downstairs apartment at the price they identified and cleaning up some odds and ends (asbestos abatement, fire safety items, etc.)

They are moving out at the end of the month and I'm already using their security deposit to make up for unpaid rent.

They use the property to secure the loan and when they give you all the money upfront (but the value of the property is the same when purchased) there is a lot of unnecessary exposure to risk.