I leave the modeling of catastrophic events like floods, terrorism, or the sequence of maintenance events to the insurance quants (I generally account for those major events when evaluating the macro market and would only do my analysis if the market was favorable.

@Calvin Lipscomb Jr There’s only so much you’re going to learn on here and the majority of individuals on this site don’t even go into those areas.

They also did major structural/framing repairs to the parts of the house that were not demolished.

Shouldn't be a major issue if you have 2 years of tax returns showing sufficient income.

There is some verbiage about type of property, apparently it doesn't count for multi-family zoning.From the city's website:The majority of our neighborhoods in the City of Lubbock are zoned as single family neighborhoods.

so from my perspective I have to keep 500k out of circulation during the loan process times.. then the loan fails.. now you have 500k with major drag.. 

From what I understand they didn't have any major problems with their downstairs tenants. 

So tenants typically pay a bit more to avoid moving unless they have a major life change that dictates the move.

Additionally, I'd increase your Vacancy to 8% so that you are saving up aproximately one month of rent per year (1/12 = 8.333%) and I'd defintily increase your CapX to 10% as CapX is for major repairs and since this property was built in 1984 I'm assuming it will have some maintenance needs sooner rather than later.

I have spoken with a few people I work with who have had primary residences that they have turned into rentals. 2 of the 3 have had major issues, one to include a marijuana grow in the basement.