hi rowan. well, lets see. you need to take a first step. all previous answers are good answers. lets first look at why your credit is where it is. fixing a problem means first understanding the problem and how you got there. the first thing you are going to want to do is go on annualcreditreport.com. you can look at all 3 of your credit reports here, on line, in full. you need to see what is in there. even if there is a legit reason for the bad credit, you still could have things on there that are not yours. dispute anything negative. it seems unethical, but dispute ALL things negative. the reason being, the credit reporting agency is required by law to check up on anything you dispute. if the creditor that they contact does not answer back in 30 days, the credit reporting agency is required to remove the negative report from your report. thats right, even if it is correct, if the creditor is legit and the debt is legit, if they do not answer back in 30 days, it gets taken off your report. second, go to a local bank. take $1000 if you can. deposit the $1000 in a savings account. a month later, go take out a personal loan from that bank for $1000, using the savings account as collateral. rust me, they will give it to you because it is secured. take the borrowed $1000 to another bank and deposit it into a savings account. repeat the process several times. then when you get to the last bank and borrow the $1000, use that to pay off the first one and repeat that process. make sure you make all the payments along the way. what you are doing here is establishing credit with several banks. after a while, you will have several banks that will be willing to loan you money without collateral. then, check with your local cities on tax foreclosed houses. these are houses that the city and/or county have repossessed from owners because they did not pay their taxes. they sell them at auction and usually pretty damn cheap. i have bought one for $500 once, fixed it and sold it. its a good cheap way to start

From your original post, let's say that Brandon had enough savings to cover both the 20% deposit on both the purchase price AND the rehab costs ($20k / $100k).

Was it sold upfront with an installment sale as part of the deal or are the payments earnest money deposits/progress payments as you progress through the construction project? 

Check out books by J Scott here on BP, they are helpful, get those deposit out of stocks, they aren't worth anything.

As far as the security deposit, should I just refund it (if applicable) to the guy at the end of the lease and tell them all, that they will just have to work it out amongst themselves?

I prefer to get only direct deposit from DCHA.Stay warm out here and Happy Holliday to other BP members!

The applicant hasn't qualified yet to give you a deposit. 

You open an account and give them free reign to use it at their discretion by depositing funds into the account.

Is this an appropriate use of the security deposit?

If you develop a good rapport with those agencies, they can both funnel you tenants as well as help those tenants with move in costs, deposit, etc. and provide some support moving forward.