I like umbrella because there is no worry of being pierced for inadequate separation of finances, if sued you have a heavy weight in your corner who has all the consequences of a defeat, and because usually it is reasonably priced (mine today is not so reasonably priced but I believe it is mostly related to the risks of CA).I do understand that the probability of needing the umbrella policy is low.  

Not easy to do with bank financing.

How did you finance this deal?

A reserve is unnecessary, but I still keep around $15,000 - $20,000 in my account.The point is, that you should sit down and assess your finances to determine what the worst-case scenario may look like, how much you would need to cover it without impacting your life, and whether you will need to build a reserve.

They will not finance new construction correct? 

How did you finance this deal?

Yeah, creative finance is great.

The first step I'm doing is checking with the city zoning to see what they would allow before I get too deep with looking at plans, financing and construction. 

Seller financed (probably) won't be reported to the credit bureaus and so won't impact your credit score at all.

From the financing side of things - keep in mind that conventional cash out refinances require 12 months of seasoning in order to use the new appraised value.