Why your specific lender requires you pay for more than protecting their loan balance is a question I can't answer, but if my lender was requiring replacement value coverage, that's when I'd find another way to pay off the loan balance more quickly on that one, HELOC on principal residence, refi with lender who will allow loan balance coverage, etc.  

I will not reveal the value that you told me on your PM of your option arm HELOC, but just know it makes the matter so much worse.

We dont have a ton of liquid cash to go above the $303K right now, unless we do a quick HELOC (if anyone has a good HELOC hook-up, I'm all ears). 

Have you looked into leveraging your equity via a cash out refi or HELOC? 

He already has a HELOC on his own house so has the starting capital, which is how I did it at the beginning.

If you want to refince or get a Heloc then Penfed is the way to go and they have one of the lowest APR.

I have access to a line of credit using my investments as leverage and also I have a HELOC I can use if needed.  

Right now I have been approved for a HELOC that would provide about $24k for a downpayment which means I would need to finance an 85/15 LTV just to get a $160k loan.  

And I discovered some strategies I had never considered.Using a little of my own cash, but mostly money from a HELOC, I bought a triplex that has done very well for me, and now I'm ready to purchase 8-10 more units.

Aka just like how escrow works on a property.Maybe I am too GREEN and think as long as a person has the "capacity" to pay for big expenses(personal LOC or business LOC or HELOC etc.) that to have more than say 4k-5k in a reserve account for the above scenario seems extreme.Maybe I just do things backwards.