We could rent it out with a deposit from the prospective renter and purchase the new home with and FHA 3.5% down or conventional Loan at 3% down with mortgage insurance.

I would not invest in that property.Rent - debt repayment - expenses = cash flow$850 - $432 - $425 (50%) = (7)In addition you need to pay yourself an additional $42/ month as a minimum 5% return on the $10,000 deposit.

I was listening to a Sean Terry Podcast and in it he says he rarely if ever give earnest money deposit when doing a deal.

Assuming that this auction was deposit only the day of auction, you could just not pay the balance.

I'm going to have the carpets cleaned for the new tenant - do landlords normally deduct the cost of cleaning the carpets from the security deposit?

There are NO rent credits.Requirements:Location = Any, it doesn't matter to us.Annual Cap Rate = 10% or higherAnnual Cash-on-Cash Return = 15% or higherLTV = 65% or LessProof of Funds = 10% Option Fee, Repair Cost & 6 months of Lease Payments**ONLY NON-Owner Occupied Properties**Fees:$2k - Loan origination Fee (included in Loan)$2k - Processing Fee (included in Loan)10% - Option fee (Paid at signing of Lease Option)5% - Increase in Option Sales Price from the Original Purchase Price2 Months Rent - Security Deposit (Paid at signing of Lease Option)What we need to evaluate a deal: Property Address Minimum of 5 exterior photos & 5 interior photos Purchase Price Market Rental Rate CMA from the MLS and from a Licensed Realtor.

That runs background checks on all potential tenants and make your you enforce a direct deposit and background checks. 

Also need Assignable Contract that states "1/2 deposit to investor (me) and balance to title company at closing".If anyone have that type of contracts, I would very much appreciate that.

Non-refundable pet deposit

I get 1200/month in rent for 5 years, with 2400 back in security deposit.