@Cameron Belknap FHA loan rules in HUD 4000.1 mention not counting the basement as part of the Gross Living Area; however, part of the FHA requirements found in HUD 4000.1 includes a section on “converted spaces” which states:“The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space…is accessible from the interior of the main dwelling in a functional manner; has a permanent and sufficient heat source… and was built in keeping with the design, appeal, and quality of construction of the main dwelling.”Furthermore,“The Appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space.

What was the purpose of holding the house for almost more than 1.5 years?

If you don't already have an attorney, check out the credentials and reputation of any attorney you plan to retain for this purpose to be sure they know their stuff.

Compare that to what you have (Apples to Apples). 

If it goes through via non-recourse, then downside is less compared to recourse loans.

He purchased a home for a bit over $500k, and realized his mortgage is about $3100 compared to the rental market which was inbtween $2100-2700.

Most advice I have read is to start looking once you get past the 5-8 unit mark but honestly a proper sized umbrella policy will serve the same purpose.

LOI’s aren’t used with single family homes, no need for them and they serve no purpose on s sfh, just make an offer. 

Counseling sessions are used just for this purpose, to keep the service member on track.

As well, you should not compare SFR or Residential MFR with commercial MFR.