They may justifying paying more by claiming they’re paying the premium for the “business”, but since the “business” and the real property are inseparable the property owner will still benefit from the increased value due to the arbitrager efforts.  

There are some vets to the site that also happen to be an agent or PM that are the exception, but it is just an interesting and expected observation.Do what you want, but if you can't go there regularly at first and then periodically after you own it, it's a bad idea.

They claim a small cash flow, and while that looks too optimistic, I believe that they can at least break even, so the tenants would be paying it off which is great. 

A more accurate way to describe it is "I received no income" - because you can have deals but still have no profit if your expenses are greater than your income.If you were actively looking for deals (and can document it) - as opposed to merely planning to start later - then you file Schedule C and claim business expanses such as marketing, driving, technology and so on. 

Regular schedule updates should be completed to track the progress vs. the baseline agreed upon schedule.

If these type of damages occur in the future, I would recommend holding the tenants deposit, or if there is a claim to be made through the insurance you sell them you could approach that avenue.

The ceiling can be durock or greenboard, never regular drywall. 

I appreciate the suggestion to check out Tim Delaney’s posts - I'll definitely do that.FYI - I’m also a regular listener and fan of your BiggerPockets Money podcast, so it’s great to connect with the community here.

I generally prefer higher since I don’t plan on putting in small claims, it’s basically just for catastrophic loses and the savings in premiums over multpiple properties for multiple years should balance that out if I have ever have to use the insurance.

Quote from @Jim Bryant: So, here's how it turned out:He showed up completely unprepared to back up any of his claims.