I think you are in the ball park with your assumption on 2% rule in the area.HOWEVER... my rehab costs far exceeded what I was budgeting and built into my UW. 

----------------------------------------------------------------------------------------Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

The reason it is legal, with some assumptions, is that the person engaging in it is a principal acting on their own behalf.

Sorry, it might have been a crass assumption that they may have some experience in the matter but I am new to wholesaling myself and curious what others may think that have done it before.

From what I’ve read recently in the Wall Street Journal, some lenders have been more flexible with assumptions.

It also appears that you are making quite a few assumptions as to how I operate my business. 

I think if you had more reserves and had less of a primary mortgage note, you'd feel a lot better off but I'm making an assumption.

_____________________________________________________________Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

My assumption was that if, let's say, the structure burnt down, the property's insurance would then pay me out FIRST as the lender and NOT issue a check in both the Lender's and Property Owner's name.

I think you're missing the most important piece of investing - and thats the assumption that you need to buy right.