Once that is done, you have no choice but to vacate.

Converting your term policy to some type of cash value would be poor financial choice, your premiums could easily increase 10-fold for the same coverage.You can use your Roth and Traditional IRA (and 401k) to setup and moved funds into self-directed IRA, which would give you the freedom to invest into any investment opportunity. 

The obvious and best choice would be for him to work for free on a flip and then we split the profits. 

Using FHA to get my first decent rental property seems to be an intelligent choice since I am currently paying $664 per month for rent before utilities.

And if ne has bad intentions a lot of time people think they can do and have what others have without working or getting the knowledge for it and then they buy something like a property to try the get rich quick ordeal and then they find themselves upside down and people like us come in and get a great deal off there ignorant and greedy choice the made.

Last choice (for me) would be using threaded fittings and pvc/cpvc/pex line. 

Every one have a choice to quit whenever they can. 

It was the old tenant's choice to move out early for the compensation they received...its has nothing to do with you.You would of been in trouble if you forced them out.

The accumulated passive losses will not go away and if they accumulate long enough, can be a nice break against your other income later when you sell.Note that if you are married, your choices for filing are Married Filing Joint and Married Filing Separate.  

From my opinion, if the mortgage is still covered and you aren't having to come out of pocket to pay for it then it sounds like a good choice.