I realized worst thing can happen (people can get injured from fire or crime) this was a problem deal with and may delay my investment objectives, but in the grand scheme of thing was not that big of deal

Worst case scenario, you are stuck for another 9 months until the lease runs out.

Worst case scenario, you could probably partner with a wholesaler there on it. 

Worst case scenario, you will see a reduction of cash flow at a lease up but I doubt that you lose $400 in cash flow.

Or, if possible, do both - buy a duplex/triplex/quad-plex, live in the worst unit and rent the others out.

I do not not know what your goals are and any experience you have in real estate or construction  and, if any, your financial education is.There are not many requirements on any loan but banks are one of the worst for beginners. 

Worst case, you can sell or refinance to avoid the foreclosure.

But on the other hand, it sounds like you're fortunate to have all paying tenants and you might not want to risk rocking that boat.What I can tell you is, the worst possible scenario is actually NOT you raising the rents and your tenants leaving and you having to re-rent the place. 

Really want to avoid anything more than 10% down at worst, but would gladly take 5% with comparable terms.

There is nothing worst than a bad fit.