(gross rents $4900; 8% PM; mortgage+insur+taxes = $3600/mo).

Living in one unit and renting out the others allows you to deduct 75% of expenses like mortgage interest, property taxes, insurance, and shared repairs as rental expenses, while the remaining 25% applies to personal use.

Explore the possibility of doing liability insurance instead, if you don't have much equity it may be your best, and much cheaper option.  

The Homeowners Insurance will include Builder's Risk.

Also you should inquire with insurance agents about the cost to insure.

.🔹 Insurance Challenges – Even when insurance pays, it rarely covers the actual cost to completely rebuild.

Did the insurance get cancelled in this case. 

Here’s the situation:Purchase Price: $540,000Down Payment: 20%Mortgage Rate: 7.125% (30-year fixed)Monthly Expenses (Mortgage, HOA, Taxes, Insurance): $3,706Realistic Max Rent: $3,000As you can see, I’m currently short $706/month even with max rent.

It isn't having paid off properties that offers security, there are still taxes, insurance, maintenance and management involved. 

I can pay utilities, insurance, and other holding fees but I won't have enough to pay other cost like listed above.