Just recently got hit with a 10K sewer line repair.

While they often require some level of repair or renovation, the potential for significant returns makes them an attractive option for many investors.Why Invest in Distressed Properties in Phoenix?

That is one of the reasons we have set in place notifications for any estimate of repairs exceeding $500 of which these repairs were 10 times that amount in total.

I’d recommend something like the tenant is responsible for the first $500, $750, or whatever in repairs for each occurrence.

I would also send the insurance company this same letter and tell them they are going to be responsible for the cleaning and repair cost.

I would recommend that you don't ignore it; repair the drywall, monitor it and see if the drywall cracks in the same locations again.

They are responsible for repairing it, whether they have insurance or not. 

All this to say your repair partner is going to be crucial to your success. 

As a PM, I'm authorized to make emergency repairs without owner permission.

Current owner is willing to break even on the purchase price however, in my opinion I think he should consider 5 or 10k less then the purchase price considering the amount of repairs he neglected over the length of ownership.