$25K is not enough, in my opinion, to insure a solid reserve fund.

Purchase price: $125,000 (assuming offer is accepted)Down payment: $25,000 (20%)Financing: 30 yr @ 5% = $540 /moInitial rehab: $5,000Closing cost: $2,0001st yr Insurance: $1440Taxes: $120 /moInsurance: $120 /moVacancy: $150 /mo (8%)Maint/Cap-Ex: $270 /mo (15%)TOTAL EXPENSES: $1200Rent: $450 /unitTOTAL INCOME: $1800Cashflow: $600 /moCash on Cash: 21.5%Here is a link to the listing if it may provide more insight:Quadplex ListingThe unit is located on a decent street in a very small town (<10,000).

I would additionally have enough to cover 6 months of mortgage payments (including tax and insurance).   

Additionally since insurance costs are born by all policy holders is it fare to allow any person to qualify for insurance when the likely hood is that their home will be repeatedly damaged or destroyed in the future.

If you have enough documentation, it will be easier when the tenant move out. remember it could be years from now.

.- There are also portfolio loans that'll just use appraised market rents to document income, no tax returns needed.- A commercial loan might be an option.- And, last but not least, there are of course hard money loans.

Also I was able to get homeowners insurance to cover the outside of my section of the building in case something happens. 

I would ask him to give you a concession or to have him place money into an escrow account that you can draw on if there is documented tenant damages, this would allow him to be reimbursed and you to be protected.

But I keep hearing people telling me not to rent out a property with a swimming pool because of insurance/liability issues.If I intend to insure it fully, am I still gonna run into problems?

If so, how do I legally do this and what documentation to I provide to escrow in order to be compensated?