You'll run your numbers based on taxes, insurance, repairs and cap ex once you get rent rolls. 

Backed it up with a commercial insurance policy that includes a homeowners policy and $1MM general liability.

I discussed my position and explained that if everyone expected payment for an inconvenience then every tenant would insure an inconvenience every month.

My question is, do I need flood insurance in addition to my normal home insurance?  

So keep your documentation and accountant correspondence handy if questioned.

After I submitted the offer I found out that I need flood insurance.

In many ways, it's good to have strict rules in place because some owners aren't properly insuring, paying the right taxes, might not get business permits or simple things like fire extinguisher inspections. 

The lender that ordered the appraisal will have to release the appraisal to the new lender with a transfer letter and a couple additional documents. 

It would cash flow around $700/mo after taxes, insurance, and deferred maintenance.

It sounds like you've put enough effort into making contact with the current "occupier" and have documented it -- I would call animal control.