., 5% might actually be high in your estimation. 

Personally, I have found that no wholesaler ever presented remotely accurate numbers (rehab estimates were well below my actual costs and ARVs VERY aggressive).  

Having trouble analyzing this deal as there are so many variables and I do not have the experiencing analyzing deals to make me feel comfortable taking the risk.Purchase price of the land would be $250,000 not including closing cost or fees, and construction for a new 3/2 home with an attached 1/1 ADU is estimated to cost around $300,000 - $400,000 finished.

If you are not going to rebuild they will settle at actual cash value/market value minus the land.There are policies out there that will settle at cash-out replacement cost but they are rare and typically offered by higher end insurers for higher end owner-occupied homes.Every insurance company uses software to determine the estimated replacement cost of a home.  

Avoid properties on main streets (traffic noise, avoid homes near freeways (smog/traffic noise), avoid homes without garages if most other homes have garages, avoid being in airport flight paths, avoid over building or over rehabbing for the area comps, know how to properly and accurately estimate ARv and rehab costs, and have money lined up in advance.

These people are clearly the victim of some brilliant guru who told them how to retire early/escape the rat race/be their own boss/etc, but forgot to mention the part about it being really tough, and like 95% of people (rough estimate just from my brief experience here on BP) fail. 

If the stairs need replacing did you give the PM that directive to get estimates and have them replaced and what did they do? 

I calculated rent estimates using both BP rental tool and Rentometer.com so the larger side will rent for average $550/month per room. 

It does not apply to 1- or 2-unit properties.Income Calculation: To conduct the test, FHA requires that the estimated rental income from all units, including the one in which the borrower will reside (if the borrower is not occupying the unit as their primary residence), be calculated.

If a property meets the 1% rule, it typically indicates that it can cover its mortgage and other expenses while still providing positive cash flow.35% Operational Expenses: This rule helps estimate the proportion of rental income that will be consumed by operating expenses, excluding the mortgage.