IMO, you have become myopic on the money and lost focus on the lease and control of the tenant - - you've abdicated control to the tenant.Security deposit IS NOT the last months rent or any 'bank' to be used to catch-up; it's to offset damages. 

It is over the top for your class of tenant and believe it or not they will damage it.

I think you may want to check out Brill's "Law of Damages."  

Property was left vacant and suffered freeze/flood damage.

Sub-roof damage repair?)

There is a little flood damage, but with a relatively small amount of capital an investor could really profit off this deal.  

Not much new in the findings we didn't expect except for visible termite activity (doesn't seem too big or uncontrollable) and water damage to a bedroom window frame and interior wall due to a poorly installed AC unit and subsequent rainwater entering the house at the installation site (also reasonable to repair and capital budgeted for the fix).  

So there I was waiting to hear what damages were going to be, afraid that it would eat all of my profits.  

The cost of the materials and the damage to the house caused while installing it, isn't worth it in my opinion. 

with many years of dealing with foreclosures and investment properties.They should know everything and everyone else you need to pull this off.You need an excellent contractor with a good eye for spotting damage that can't be ignored or repaired later to go with you to the property.Good luck to you.