If so, I’d feel comfortable retaking possession.

To say the least, this project is a HUGE undertaking that I wouldn't feel comfortable tackling yet.

They will probably need to have an agent there if you don't feel comfortable for people to be in your place without you there.  

I recommend you take a seat and watch how things unfold for the time being.

But they're not as comfortable managing or owning a significantly more expensive asset. 

You could also do seller financing if you're not comfortable with the HML.

Given the current situation, even if I lower it to 1150, I think I still have enough room in my numbers to cash flow comfortably.

But when you are the buyer and the appraisal comes in low, you are really in the driver's seat.

- PM rates vary per area. 10% is average but other locations are either higher/lower or may even be a flat fee.As long your solid on all of the above (Which by no means is a complete list) and the cash flow is something you are comfortable with (everyone is different) then it's up to you to decide if it's worth continuing down the path of this deal or finding another.

I find that getting comfortable on the income side of these investments is tough for a lot of first time vacation rental investors.