IF that is the case full stop - yes you are paying for something called insurance but if you have a claim the company has the right to pretty much deny coverage for having the wrong type of policy.Landlord policies are higher cost but for a reason - there is a different and increased level of risk when the house is not owner occupied.Talk with your agent and get all the details sorted out. 

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

I’m not sure how much upside potential they have.

While it's positive after expenses and has potential for improvement in year two, it’s been a bigger hassle than anticipated and taking attention from other priorities and areas of our life with not enough return. 

From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex.  

this deal seems like a lot of risk and I am interested to seeing how it turned out.The tenants were a few weeks away from the foreclosure auction.

The loan has a MUCH higher risk for the lender because it isn't secured by real estate.

Ordinarily those tenant vacated damages would be too remote, but it sounds like they were contemplated by both parties at the time of contract.Were I in this situation I would be looking to state law to determine if the EMD is truly the extent of my potential liability as a buyer. 

Detroit can be a fantastic market with strong cash flow and good appreciation potential, but it’s definitely a unique place with its own quirks.Starting with cash is a smart move, especially in Detroit, where local knowledge and relationships can make a huge difference.

An LLC is potentially one minor factor that might contribute to the evidence that you are running your rental activity as a trade or business, but it's definitely not required that you have an LLC to qualify.