It is still a very tight market here with limited supply.  

Has anyone had experience with this issue and know a way to get a good insurance policy that doesn't cost an arm and a leg? 

When we take over a property, and the rents are $400 less than what market is, as in your case, there' usually no way that resident can pay.

A direct purchase of a rental with no rehab, I would want 10% or greater.  10% would be my minimum in this market.

Never trust wholesalers they have no duty to you to tell the truth.so that being said.. just use them as a lead source.run your own comps. do your own inspections and have your rehab crew give you estimates.

It appears no. 

Based on your financing options, you are going to be limited to 4 units or under, given 5 and over become commercial lending, so no FHA or owner-occupied options.I am assuming you plan on living in one of the units, but to be clear, that will be a requirement for at least 12 months, under most mortgages.You may get other's posting about talking with wholesalers or trying to find off market deals.  

There is now essentially no benefit to obtaining a second home loan over an investment property loan, except for the ability to do 10% down rather than 15% (minimum for investment properties).This info is all related to Conventional mortgage financing.

However, the whole East Coast is at risk of hurricanes, the midwest tornadoes, and west coast mudslides and Earthquakes, so to me there is no really safe area. 

Pueblo's housing cost on average compared to Colorado Springs is $150,000 less.