Sale Price$171,000 - $55,000 (Rehab) - $13,680 (8% fees) - $40,000 (profit) = $62,320 MAOFrom talking to other investors and doing research, typically a Novation allow more money to the seller, correct? 

Both answers are correct.

Was I correct in my statement?"...

If he kept the house, then your statement would be correct, because there is no immediate taxation of insurance payout.

I'm going off the understanding that you still need to spend 500+ hours in the business to achieve material participation (please correct me if I'm wrong). 

If done correctly it can be very profitable.

Even the best property management companies (PMC) struggle with:- Finding reliable handyman and contractors (ServiceTechs)- Same with affordable ones- Tracking preventive maintenance- Tracking previous work for potential reoccurrence warranty coverage- Understanding tenant reported problems, so the correct ServiceTech can be dispatched- Determining if tenant is at fault for an issue & should be charged - and will proof stand up in court?

But it's rapid price growth and sales activity could indicate a more volatile market, with the potential for corrections if demand slows as affordability becomes an issue.

And you are correct it was a house hack.  

Sadly Martin is correct.