If I sue him, I'm suing for at least $3000, plus damages for withholding my deposit for so long.2) He's probably an ordinary slumlord and an upper middle class person.

We can't blanketly deny people in my market based on criminal history, so I would double check in yours.I'm in C class markets, so everyone pretty much has some kind mark on their credit.

The reason for selling is we realized the property class and size isn’t what we were wanting long term.

If that were the case, the damage would start and likely be heaviest at the wall the sink is located on, not in the center of the ceiling, as in your picture. 

Now granted depending on Asset class this may not be an issue but it our trolling in the C D high yeild rentals this will be an issue.so in my mind figure out what you need to have to back stop you if you have either of those events  Black Swan or bad tenant. then put funds aside accordingly and its not exponential the more doors U have the less per door you need.

@Jim DavisIt really depends on the class of property and the funnel you collect potential tenants from.

What is the market cap for this class of asset and area? 

Pick a solid B-Class suburban area.

For example, a given market / property class may be at 6% CAP rate, so if you find a property that is 10% CAP rate, that tells you it is either a good deal or distressed.

My top questions would be the area/tenant class; will you hire management; and how are utilities split.