I'd just keep track of all the damage they do to your property (take pictures, write down everything that happens), then deduct it from their security deposit when they've vacated.

Using leverage will significantly increase your return on investment (pre and post tax) and reduce the amount of equity tied up in each deal.I keep one or two properties free and clear to provide additional collateral for new acquisitions, but everything else gets some level of financing placed on top because interest is tax-deductible and mortgaged properties are less appealing targets for lawsuits.

I'm between 25-35% returns before any tax deductions.

All Option payments are tax deferred until the property sells or option period lapses.Learn the WHIFFMs for home sellers selling on rent to own from the IRShttp://www.nolo.com/legal-encyclopedia/top-ten-tax-deductions-landlords-29497.html

If the carpet was new when they moved and they stayed there 2 years, you could only charge 60% for replacing all the carpeting, as you would have to deduct 2 years of useful life from the carpeting before charging the tenant.

Mortgage interest deduction be damned.

If you've been renting the place for two years or more they should be able to- and they should be adding back the depreciation deduction as well.

If you want to be able to deduct your payments to him.......yes.

I know that you may deduct mortgage interest paid back to a loan, so I'm curious to know is the interest paid back 100% deductible or only a portion?

As far as closing, just have the title company handle it the deduct from however you decide to transact the transaction.