Quote from @Joey Andres: Some landlords will improve with practice.

Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice.

If you want to learn more about the practice (and art) of safely and securely finding and funding a PML to see if it's for you, check out my book on BiggerPockets called Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. 

Explain in details...I would love to learn about best practices!

I've been practicing law for 20 years, and I can tell you there is a big difference between a "real estate" attorney and one who specializes in property management.

(Idk if this is a still a normal practice) savings are real for both parties. 

I would shop around, maybe the LO you're dealing with is inexperienced and is mis communicating or they may just have odd lending practices?  

So there is interest in these types of homes but I’m second guessing myself now if they are just to small and not so practical with such a small yard space.

Big part of my practice is currently focused on real estate investors and asset protection services. 

I would make it common practice to require a tenant policy be in place during lease term.