that is not acceptable wear and tear in my books. I haven't been in your situation, they probably should have been issued with a breach once you identified them. You need to be proactive and have breaches issued and push for quotes for the repairs. That way you can keep some of the bond. Although the danger is they will stop paying rent and there won't be enough bond money to cover the damages.
I would be ditching the PM once this is over

We got early access on our current house. We put in the offer that if the house became vacant before settlement that we wanted unconditional access (it was tenanted).
 It did and we were able to get in knock down a wall, put a floating floor in downstairs and polish the boards upstairs and started moving in.

Can't take credit for the weeks free rent – think that idea was in Steve's book
Gee I am still astounded – Sandrinham as well!!

wow! I must say I find that staggering.
Does it has air con? Is there anything you can value add to make it more attractive eg. dishwasher, update fixtures

I would reduce my offer by what it is going to cost  you to have the issues rectified or ask for the vendor to rectify them prior to settlement at your original offer price (that is if you still want the property?)

does the zoning allow residential living?

My advice is don't do it.. Duckster has stated some very valid points. Direct contact with the tenant creates a familiarity and leads to problems.

If your determined to do it, despite the above. Please make any contact between yourself and the tenant in written format ie. text, email, letter, fax, unless for emergency maintenance. Please make sure you have a PO Box for correspondence – do not let the tenant know your home address.

You can't afford to take people at face value. if you find you need to find another tenant do your reference checking thoroughly.

And remember agent fee's are tax deductible. We self managed and it ended very badly just recently. We just signed up with an agent who we researched. Even after his fee's we are still $80 a month better off.

Hey Halfback – did you end up buying? We are interested in the Geelong West area

My advice is don't do it. It is too close and personal when you deal directly with the tenant. Ours ended yesterday and last week after a series of abusive voicemail messages and texts I actually had to call the police – the police wanted to charge them but I elected not to.
We are $2500 out of pocket and a couple of days out of life and are still thinking it could have been much much worse.
If your determined to do it yourself, please get a PO Box so they don't have your actual home address.

If you change the existing loan to interest only repayments will take make keeping it more viable? Also don't forget to include depreciation costs into your calculations