Of course replacement cost will cost more with it providing more and better coverage.

In terms of taking on more liability, it boils down to what insurance will be less expensive and looking at what we are having to pay through the HOA (for insuring the aggregate of all units), it will likely be cheaper for owners to purchase individual HO3 policies to cover their units (as townhouses) as the carriers would not be taking on the risk of the entire $100M+ in aggregate replacement value, and the owners can take out policies for individual units with a whole range of carriers vs the HOA trying to get coverage through the secondary market.  

Different investors swear by different criteria, whether it's IRR (and the closely related NPV), cash on cash, the debt coverage service ratio (DSCR), the CAP rate for a property, or some other metric.

Primarily, I'm leaning towards conventional lending, but I'm also considering the Debt Service Coverage Ratio (DSCR) loan type.

umbrella policy is usually associated with your individual coverage. it's a secondary policy in case the first one is not enough.   

As many investors know, lenders typically require more down payment 15-25% and to utilize Debt Service Coverage Ratio or DSCR loans would not allow vacation rental projections or income to be utilized for qualifying purposes.

Whereas an umbrella policy, though providing liability coverage, do not. 

HI Brandon,Have you tried looking into a DSCR (Debt Service Coverage Ratio) loan?

This isn't uncommon but getting coverage for a 4-unit if well maintained shouldn't be difficult at all.

Keep it Simple until you start approaching $1M in worth or value in the property then you can start using LLCs for liability coverage.