They asked for the source of the money in detail that just isn't warranted and would've required him to track every customer who contributed to his business success it sounded like.

Greg:    First, do not get discouraged by anyone, someone else is doing it so you can, not going to be easy.If not done already I suggest to look into this:Enforce that PM uses a great website for rental screening, ones with a background check and choose the best tenants possible.Review you leases to close any pitfalls and enforce the lease to the T.Keep the units in good shape and keep extra cash reserves ( fixing + trip expenses )Tiger than normal lookup on the PM ( have second PM line up ), vacancies, unit showing costs, repairs, fees, etc,  require a once a week normal operations report and a once a month full operations report.Family, friend on virtual assistant that regularly drive by the property and reports to you, or if cash flow allows and deem beneficial you can install security cameras and remote view activity on the property, nowadays there are lots of options.Check if feasible to get a home warranty plan for the units so some pain issues are self-managed by the tenant via a phone call to the warranting companyIn which city/state is the property? 

Is the roof and remodel warranted?

You are only able to muster up around 1600 in rent for such a house which tells me that it probably isn’t enough to warrant the time trouble and expense but I could be wrong 

@Rick PriceThis is something that warrants sitting down with your attorney and CPA.

Once all the repairs have been completed and all invoices have been submitted, the insurance carrier will finalize their subrogation demand to recover their settlement & your deductible.While there are a few comments discussing the issues with insurance coverage & premium surcharge, the size of this loss warrants filing an insurance claim and illustrates the benefits of insurance. 

Has a warrant?

If you intend on using FHA again, you of course have the issue of proving that the you either had a material life change warranting a larger property (had children) or you are moving far away for work. 

Most likely the co-op is non-warrantable, meaning Fannie will not lend there or waive the building.

Landlord does not warrant the fitness or uninterrupted use or enjoyment of such appliances by Tenant.