Hey Rachel,I can't help you because of the location but you're going to have an extremely tough time finding insurance for that type of risk. 

Going into an area with little data is high risk but could be high reward. 

You need to minimize upfront expenses because 100% of your investment is at risk and lost if the lot is not buildable.My favorite strategy is to locate the property and tie it up for usually no more than $100 for a period of 8-12 months, analyze it myself and if I believe it to have a chance at being buildable I create a permitting plan and market the property to other investors/builders willing to take on the permitting risk.  

Each property comes with its own set of risks and every investor must understand those risks and do the minimum - get 3rd party inspections, 3rd party appraisals, verify rents, jobs  and crime rates at city-data.com - before buying.

Getting one property and cashflowing it will be a challenge. you can try seller financing but you are still going to be highly levered which just enhances the risk that you are taking on.The best way to grow is to focus on managing your rental, saving money through your W2 and crushing that - if you are a realtor you will make more crushing it as being a realtor than over leveraging real estate - then save for down payment and buy slowly. its not a rush.

So I figure, if it makes $400 more per month, I'm looking at 4 year payback on the renovations with the risk of some other repairs down the road, such as furnace.

Storing things.Even if the appraiser risked his license by not calling the bathroom out (why would an appraiser take that risk?)

Maybe there is severe hurricane risk, but it is something I would look into. 

Thanks Dennis, I think you're right that planning for a more conservative return would be a good idea.I re-ran my numbers at an even more conservative level:Lower ARV: $800,000Lower income levels (I'm assuming it will take a couple years to get up to full potential income, but giving myself 3 years was a conservative estimate):Year 1: 50k (NOI $1,000)Year 2: 80k (NOI $31,000)Year 3: 100k (NOI $51,000)My ROI numbers come out to:1% (year 1) 46% (year 2) 76% (year 3)This scenario seems like an acceptable risk to me, when the upside seems far more profitable.

Whether the lender decides to do anything, and exactly what they decide to do depends on the lenders particular strategy, target ROI, risk tolerance, current interest rates, interest rate of subject mortgage loan, etc.