*edit: episode 382.5!

This other quote I found in Pub 527 seems to point to shared spaces counting as fully deductible if your paying for additional liability insurance on them related to them being an area the tenant can use:"[I]f you paint a room that you rent or pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense"Other info I've found that I'm fairly certain is correct. 

If that does not come up with an affordable option, there are 1-2 Umbrella options in the market that are under $1,000 per year per $1M, while the others have a minimum premium of $1,000.I'll PM you the companies my clients use. 

Once your TK house is purchased, the fact that you bought it TK does not matter, since TK is simply a shortcut way of buying a property - yes you pay a premium for that and so it would be factored in. 

@Jonathan Greene I guess I should edit the post.

Turnkey seems simply enough, we do not mind paying for a *premium* service and feel we could learn a lot through working with them.We live in Nashville (3 hour drive).

You don't have to set your sights as high as $700,000 you can find Multi's in good neighborhoods in good repair (though they will need updates) for $450-$500k+ , the problem you'll fid with house hacking with an FHA loan (which is the cheaper option) is the mortgage insurance will eat away at your returns and depending on where you buy that premium may cause you to only break even.

We typically get a premium to the market, which is disproportionate to the cost we incur with the materials & labor associated with the upgrades.

Originally posted by @Theresa Harris:I wonder what happens if the landlord can't get insurance.That is one of the exceptions: Imposes undue financial or administrative burden to the landlord.Higher premiums or being forced to search for a new insurance company would likely qualify. 

We typically get a premium to the market, which is disproportionate to the cost we incur with the materials & labor associated with the upgrades.