Here are the itemized list of things that needs repair.2 units 1100 sqft each unitsRoof - New Roof Required, Gutter issuesOutside steps & railing needs to be replace or fixed.

Taking 5% of the rent when your rent is only $800 is not going to be enough to cover all those big items.

Barn wood, the real stuff, is an artisan supply item that is used for great crafts and interior decor - - there's no substitute for it when it's in the hands of a "craftsman".Just like you don't put Home Depot windows into a Queen Ann or Victorian, a craftsman looking for Barn Wood knows what he wants and will not rest until he finds it.

These comprise items such as the presence of smoke detectors and preventing hazards to small children. 

If you are assuming $180 in monthly capex I think that is far too much considering the amount of new items done to the home.  

Basically at this point, I owe him for removing 1 plastic shower and 1 tile surround in a bathtub.Yesterday, this guy calls and tells me my bill is $600 from the "remove tile" line item, and says he will give me a discount to $500 because we had our own dumpster.

Should I be more restrictive (like cats) or maybe less strict on certain items?

As others have mentioned, mortgage and insurance policies are not transferable.When you're dealing with AS-IS, I would recommend you getting pictures with dates to record the condition and items in the house to be included in the sale.

If it's occupied and in at least fair condition the appraiser shouldn't come up with too many crazy items to fix.

Simplistically stated, if there is continued demand for a item the price will rise or stay the same.