If you do end up segregating, keep good records to prevent having to recapture the depreciation of the reclassified assets.

We've invested around $50,000 in improvements (central air and hardscaping) and our mortgage is a 30-year fixed at 2.5%, with a PITI of $2400.We think it could rent for $3,750 - $4,000 per month based on local comps.

Now you have seismic resilient with fire preventative. 

That could possibly be preventing traffic.

If you do a forced air with ducting, you could do a heat pump.

Nights, weekends, holidays, etc.To keep this on-topic, though...DO figure out what's healthy for you to manage but remember it's a process where every experience teaches you good and bad (and be patient with that process).DON'T sweat the small stuff (damage/costs under $50, undisclosed dogs, etc.) but DO find a way to learn, prevent, put in better practices to maintain your sanity. 

Unfortunately due to the business you choose to operate incidents like the one you experienced are more likely to occur compared to a property that's continually occupied by a tenant where the water would more likely be run at a higher frequency which would prevent the pipes from freezing.  

Do any of the tenants have Dogs (Breed restrictions are individual to each company).These may not prevent you from getting insurance but they may limit the number of companies willing to insure it.

I told him to pull out everything that might have gotten wet, get everything dry (to prevent mold), and make sure it was done right. 

In some places I think courts prevent people on the same insurance policy from suing each other, and some insurance policies exclude two people on the same policy from suing each other.