I hope you have a lot of cash available to cover the FTC fines. 

This is after covering all expenses and setting aside a certain amount for reserves to cover future expenses like capex or vacancy. 

However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc...

The mortgage would be $5,200 so I would cover the other $3,200.

Do you think it's common for a tenant to sue for an amount greater than insurance can cover, then take your property or even your personal assets? 

Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy.

The best option would likely be a construction loan, which can cover both the purchase of the land and the build.

Even better, I might be able to snag it well under market value since it's an estate sale that's been sitting on the market for nearly 200 days.Here’s the challenge: while I could afford to purchase the property under market value, I’d be stretching my budget thin to cover the mortgage during the period I’d be remodeling the basement to make it rentable.

One thing to be aware of is the FHA multifamily self-sufficiency calculation which determines if a property can generate enough rental income to cover its mortgage payments.

There are short-term rental management companies that can help with that.One that I work with in Michigan covers the entire state and can advise on local short-term rental regulations or regulations that may be on the way, they can give you an analysis of the demand for short-term rentals in that area, nightly rates in that area, monthly occupancy percentage, and projected monthly income.They also let you choose the level of service you would like from them from full service to minimal.To your success!