Rehab projects almost always come with unexpected / unaccounted for costs.

Your debt service will also be lower which helps avoid getting pinched by unexpected expenses and being forced to sell.

Yes I have insurance, but insurance companies can also deny your claim...happened to me for a car accident.

We ran into some unexpected costs last year, so aren't able to contribute much to the down payment on the next property right now as we build up our savings again (DP will be her contribution).

What if you got into an accident right after the foundation is poured - the homeowner is completely screwed.

If you have some money in the bank to cover unexpected circumstances (vacancy/repairs, etc.) and you know that you're going to struggle to put together the down payment for a multi-family, then beginning to build up some equity, experience and momentum (by taking action) isn't the worst idea.   

However, the question we have is, if she assumes the mortgage and her mom unexpectedly goes into care, can the government force us to sell if it occurs in the five-year window?

I'm glad to hear it's working out :)@Ola Dantis That's an excellent point - at this point, I don't plan on carrying a balance unless an unexpected expensive repair comes up. 

If rates unexpectedly increase and the loan term is coming due, guess what? 

This part was ok although it was unexpected because it's considered a "Hard Money Lender".