We ranked all our monthly expenses with a 1 to 5. 1 being absolutely essential like food and shelter, 5 being totally frivelous - stuff we were spending money on which was neither necessary or enjoyable to us, like a storage unit we had because I couldn't be bothered to organize our garage more to make space for the stuff in the storage unit. 3 we would use for things which were not necessary, but we enjoyed.

Third is the HVAC system and the costs to bring that up date.The appealing part of this property is that it is in a great location, would likely appreciate in value substantially and the size of the land on the property would possibly allow for expansion (additional garages could be built and rented for self storage for boats/campers etc.)Would you take this deal?

You should have moved all of his stuff into a storage for 30 days before you dispose them, but that's water under the bridge now.With respect to your first question, you mail the security deposit letter to his last known address.

It gives me options for up to 8GB of storage by setting up my new thing, downloading something and inviting friends.

Be sure to check your local landlord-tenant laws on storage rules.

I offered to move the items to a storage facility and was told the tenant cannot afford that and not to do it (per case worker). 

Could this be made into a duplex, maybe rent as a hair studio or something, lease it out for storage, get a "roommate", turn it into a home office for tax deduction, or just rent it to a friend or family member for a cash deal?

I reduce the purchase price, I pay to put stuff in storage, pay to put people in hotels and disperse cash before I close if I have to.  

--Newer electrical, windows, furnaces, roof--Large basement for storage, or could be made into laundry facility for the duplex.Here is the rub:--The original garage for the home, located just behind the house, was split off into a separate address before I purchased the home.

Even if it just reminds them that they have neighbors that can hear them, it is worth it.Storage- Define where they can store items- whether it be no storage outside their unit, or an area in the basement.