Neighborhood conflict

Hello all. Ladies and gentlemen, I have a situation on my hands that I need some critical advice on.

I somewhat recently moved to a low budget apartment complex. It's kind of ghetto, but everyone seems to mind their own business which is ok, except I do have this one neighbor who has now become a problem.

I've let this person into my apartment on a few occasions and have shot the s..t with him a few times. Due to my very apparent error of judgement, I've had it in my head that this person is a pretty solid dude until recently, he's shown his true colors one night.

Red flags that I've should've known better to pick up on (for most cases I presume so as not to stigmatize), the dude is heavily medicated for bi-polar disorder and PTSD, and to my observation is a full-blown narcissist. He claims to be a well renown rapper although it's obvious he hasn't the clout he claims to have. He associates with some ill-reputable neighbors that owe him money which should have been red flag number 1 to which I didn't pick up on until later because I'm an idiot, and overall isn't willfully accountable for his own problems.

I live by myself and the dude in the neighborhood is the only guy in the neighborhood that I talk to. I lent him some money and gave him plenty of leeway to pay me back at his own convenience. Well the dude hasn't paid me back yet and at this point, I don't think he's going to. It's not at all like me to pressure anyone into paying me back on a loan however, I will stand firm in saying no to those who ask for more whilst still owing me money.

Speaking of the night to which this dude shown his true colors is the night this dude crossed the line (not to mention that the dude knocks at my door at odd hours of the night so he can b..c. about his wife nagging him all the time), he asked for more money, I said no, and he calmly respected my decision however not to get it twisted, he asked me to buy something off him for a price lower than what he was selling is actually worth. He showed it to me (at my place) and I agreed however, I said I can buy it from him later when I get paid. Well, apparently this dude hasn't been told "no" a whole lot in his life because he didn't take this well despite myself guaranteeing him that I can buy the merch at a later date. He kept asking me over and over to buy what he was selling off him (bc apparently he's in a situation where he needs the money asap and the price to which he would sell me the merch would compensate for what he owes me; not my problem), to eventually demanding (not asking) me to buy what he was selling over and over again from a state of passive aggressiveness to aggressiveness. This dude also exercised manipulative conversion so as to pressure me into buying his s..t despite the fact that I don't owe him an explanation as to why I won't buy it now opposed to later in the first place. I eventually told him I don't want to buy them period. He didn't take it well, but thank God he left peacefully yet bitter. It might've been due to the fact that I was sitting next to my desk where I usually keep my pistol (which at the time was pretty visible). Thank God I didn't have to use it.

Well anyhow, being neighbors with this guy is kind of messing with my psyche because I'm still yet to tell him when I see him that I want nothing to do with him. Not to mention, this dude does have a track record for violence, and it very well seems as though that when I do confront him to tell him off respectfully, there is a likely chance of a fist fight. I've never been in a personal fight where beef's involved, but I have done a reasonable amount of training in boxing to where I got my jab and cross together...this was however years ago and I'm not at all the kind of guy to start fights... Anywho, what also concerns me about this guy is that, while I'm not afraid to fight him, I must also be concerned about this not just because it's a fist fight, but I figured out this dude is a frequent user of PCP to which according to google, effects include an inability to feel pain, numbness in the extremities, agitation, and combativeness just to name a few.

It hasn't yet gotten to a place where the police need be involved, but this situation has to be dealt with and I'm obliged to do so for my own sake and peace.

How does anyone suppose is the most intelligent way to approach and conduct one's self in this yet to be confrontation?

I am thinking for myself that when I see him walking to his own apartment, I can approach him outside because I feel vulnerable doing so in front of my own door that I no longer want him to knock on (this may sound ridiculous however, it's an upstairs apartment and its entrance is very close quarter). Or I could just swallow my own pride and tell him off either behind my closed door after he knocks for safety, or take a risk and confront him outside in front of my door.

Personally, I prefer the first option. I believe conflicts should be settled face to face, but I have come to learn that he is quite unpredictable.

I'm very sorry for the long read however, I really would sincerely appreciate anyone's input.

Thank y'all very much.

TL;DR: There's a neighbor who I wish no longer to associate with because he essentially due to his own attitude firmly believes that just because I associate with him, his problems are inherently mine, and he has to be dealt with. (ofc respectfully and legally).