Should I agree to this so I can make some additional income, or is this opening a can of worms that I don't want to open? 

For me I use 6 months of reserves (monthly payment mortgage, property taxes and insurance) for each unit (if a duplex it's 2 units) and an additional $10,000.

So If I understand this I would be looking at base rate +4.125 then whatever additional rate the lender is adding on, minus points to buy the rate down? 

Or does it present risk, that if appraisal comes in higher, the bank can ask for more, as well as take additional offers.My understanding is, they can accept my offer, or if the appraisal comes in higher than my offer, re-open negotiations. 

He probably misinterprets the law that nothing ADDITIONAL can be collected from a tenant with an ESA, but a generic security deposit appears to be collectible. 

Additionally, when the invoices come in, we add the invoice to the property ledger, so the owner can download or view the invoice once it's paid.  

@Don Konipol in addition to what @Chris Seveney said, also there is the financing cost. 

If going to 75 ltv and additional price adjusters were just enough to make it the loan exceed fnma points  and fees test so they have to limit to 70 to meet that requirement. 2 It was a Dti issue and they couldn’t approve you for a higher loan, but presume if that was the case they would have mentioned either reason before.

Based on that math yes, you'd clear a couple hundred dollars after all debts and expenses, not the worst spot to be if you're not necessarily needing the cashflow/trying to live off of it, but instead are focusing on playing the long game. 

In addition to learning by experience, you could be forming a rock-solid partnership that could offer resources and options you didn't otherwise have.