I use standard landlord policies on my properties which include $300K liability, plus a $1-2M umbrella policy over all my rentals, home, and auto. 

Ideally, you'll have an agent with in house property management, because it keeps them accountable after the sale.

Ideally, you're getting 10-12% CoC ROI on a $7-9MM property (or properties) with 2-3% appreciation.

I would be cautious of considering it for less than a 10 year play.This is what we typically do (it is not rocket science):Purchase an RE that has a value add, ideally is a little below market value, in a nice enough area with good appreciation benchmarks. 

Similar to your hard money lender, the hard money lenders I deal with have minimums that this property would not meet, either.

If it's your personal house, hard woods throughout would be ideal.

Ideally I'd like a 3-family (or 4-family if I can find one) that will cashflow with just 2/3 units occupied and me living in the 3rd.

That's the most ideal place to be for the season but that's it.

This is not your problem, I'd ignore it.Their renter's insurance should cover any lost contents and their auto insurance should cover any damage to the vehicle.

I plan to update the vacant unit that I will occupy, so ideally I would keep all of the tenants in place during that process.