You aren't going to be made whole given the vast amount of the claim against so little assets/worth.More realistically, you may own a property worth $40k with a need for $10k to address tenant damages while the tenant doesn't have $10k laying around or stashed in his/her pillow.

She is now in pre-school and I have started and run an at-home e-comm business and I am using the funds I make to stash and save so I can finally start investing!

I am wondering if I should rent out my home for $2600 (avg rent on this island for a home w 4 beds) and lower my expenses by renting myself a condo for $1200 a month so I can stash more money away to buy one of these Vaca condos?

These line items are meant to be reserves you stash away for a rainy day, so there's no harm in over-estimating them. 

If so, @Chris Wilkening, then there's no reason not to take your cash flow each month and stash it somewhere it will see some return.

I feel like a recession is coming up so I kind of want to sell but then again the seller fees are making me not want to sell it so early.Also, with the interest rates so low, I kind of want to pay down to reach 20% equity so I can re-fi.My third option is to just keep stashing into savings and riding out the 2 houses and buy a third one.

From what I hear devon has plenty of money stashed away and very little debt. 

Also, stash some money away each month for these big events).

I recommend having more money stashed for fixes.

Needless to say, unless you have a trust fund stashed away somewhere, you have to be resourceful.