The family viewed the house, loved it, and requested that I install satellite TV and add it to the costs, which I did.

I would have contacted the locksmith tech to get additional details before assuming it was tenant damage.

When you move forward, they should provide proof and name you additional insured.

Even if the rental has a decent cash flow with additional flood insurance, we're still not sure we want to take on that risk as we are out-of-state investors (planning to move back to KY in the future, but not now) and we don't like that it will potentially bring down the perceived value when we try to sell it in the future.The seller has never lived there and has not provided any information on if it has flooded before or not. 

So your additional ~240 SF could be the foyer, hallway and bathroom spaces that are allocated by percentage to the unit.

If you just take the 13,835 financed at 6% you are adding 83 dollars a month. so a double whammy.Now, lets consider if rates drop to 5.5% in 24 months (not a prediction just a what if) and you could have refinanced at a much lower costs then the above scenario in what you paid in pre-paid and additional interest. on the other hand, if rates for your same scenario after your 5 year payback period is 9, then you will have an asset with a much lower then current market rent.  

This money will be used to pay down some debt I have and also purchase 1-2 additional rental properties.  

If they have a loan at a favorable rate, I give them additional money to take over the loan.

Homeowner should have an adequate policy and you can use additional damage protection from services like Safely and Waivo.Yes, security deposits are normal for MTRs and highly recommended. 

Additionally, it pretty much the 1% rule as a LTR and would absolutely kill it as a MTR/STR!