I'd mitigate the worst case by not going over $150K on purchase price.Also, it looks like you have some money, so even in worse the worst case scenario, you could sell and sustain a loss without sinking.In the expected case you will invest about $200K and earn about $20K, a 10% ROI.  

I want to start investing there to increase cash reserves however I have an end goal of buying and holding multiple properties that are free and clear in order to sustain a comfortable, but not lavish, lifestyle for myself and my family. 

FHA is very picky when it comes to 3 and 4 unit MFHs making you prove the income from other units will sustain the mortgage which gets difficult since you'll be living in one of the other units and the LTV will be really high.

I don't see why it should be necessary to provide him an incentive to do what he should do anyway i.e. complete the work in a timely manner and within budget.

The best way that I know of to avoid making yourself a target for a lawsuit is conducting your business (whether it is in your name or a LLC) in a legal, fair, honest, professional, and rigorous manner.

It seems to me you will be able to sustain the trials and will only come out stronger.

I have heard that your best chance of sustaining yourself full-time is exceeding 10 properties.

If your assumptions are based on how fast real estate values have been going up the last couple years, I would caution you that I do not think the current growth trajectory is sustainable.

Depending on the manner of the permits, you can usually have a licensed contractor sign an affidavit indicating the work was done satisfactorily, or you can actually call for an inspection.

Some people attempt to build a business out of this, but I dont think that is really sustainable.