The reason not to upgrade, is that you won't get that much more income for the cost of the upgrades.  

You should only be liable for tax on any appreciation since you inherited the rental (minus the cost of your improvements). 

Can try to reposition to Class B, but neighborhood may impede these efforts.Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years.

Quote from @JD Martin: If you have found people willing to lend you - someone with I assume no experience doing this, since you're here asking the question - 100% of the costs of such an endeavor for half the profits, you have found a gold mine and should look no further.

When I consider the risk and the rebuilding costs, I am surprised the insurance is not even higher price.We got a referal for our CA FAIR agent from the RE agent and they were real responsive. 

Quote from @Patricia Steiner: There are several lenders who offer low/no closing cost options for first time homebuyers.

I want to stop being pennywise pound foolish and get things set up properly. 

I have found that they worked really well when it comes to getting better tenants and better rents, and having less hassle, less headaches, and then getting a higher sales price; without paying closing costs or realtor fees.

Starting with house hacking is a smart move, especially in a higher-cost area.

Most of my experience lies in the longterm rental property world, but we just picked up a short-term rental in Vermont and are going through the process of getting it ready to go.The property cost about $415k, and my insurance quote for homeowners + liability was about $4k, which seemed high to me.Obviously insurance quotes vary greatly by policy, but wanted to get a sense as to what others were paying and what provider they used.I am used to long-term rental policies, which seem to be less expensive.Thanks in advance!