Covers the building, $1M/$2M commercial general liability and loss of income.It does not have some of the bells and whistles that an STR specialty policy like Proper has, like coverage for liquor and off-premise liability. 

You must work at least 750 hours per year in a qualified RE business.So most people who have high-earning W-2 jobs outside of real estate won't qualify.But the unique thing about RE pro status is that even if you don’t qualify but your spouse does, you can both file jointly and claim the losses from your RE investments to offset your other active income together.It's an incredibly powerful benefit if you do meet the criteria.

The cost segregation study generated $80k in passive losses, meaning a portion of that would be recaptured as ordinary income (at a 25% federal rate).

So that first year may be a 2 to 3k loss or break even unless he gets lucky. 

Also loss history can play a significant role. 

While no properties actually flooded, the entire area was a disaster - roads destroyed, rescues, loss of power, and loss of safe drinking water than lasted for two weeks.  

So that comes out to be $40K per home in the end.But during the DD, I've found instead of 40 vacant pads, only 35 vacant pads are usable, so there is a loss of 5 spaces for me.What is a FAIR way (to both sides) of reducing the purchase price to account for the missing 5 vacant pads?

This might lighten the weight of the tree toward your property;  so this might help or not. 

Cut your losses and let it go to foreclosure!!

Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules.