@Pandu Chimata ,The gain on the sale of the property is not taxed until your 2018 taxes are due in 2019, but if you made a significant profit, you might want to ensure that your W-2 withholding, if you have a regular job, is enough to cover the extra taxes you owe on the profit or make estimated payments so that you dont pay any penalties for underpayment of taxes you owe when you file your taxes 2019. 

This is where I saw an opportunity.I saw the potential for my grandparents to leverage the equity in their two unit home to pay off their new purchase in full and have the rental income cover the debt service.

.- Should I keep the policy as is at $24k to just cover my initial investment?

If you purchased the property correctly, the tenant's rent payment will cover the mortgage.

As far as Lee and Charlotte Counties go, it seems that most people that are still underwater are underwater because they've stacked HELOCs or second mortgages on some properties or they've simply stopped paying years ago so their banks have levied heavy fees, fines, etc. on top of unpaid principle.On the appraisal side of my work, I have lender clients who have ordered drive-by appraisals for pre-foreclosure properties since 2012.

I would only do it if I had the time and they paid me a decent fee to cover my time and an ice-cream cone.  

$79k @ 3.5% would be a down payment of just $2,765 which would leave you ~ $13k for other REI projects (or to cover more costly renovations).

Penetrations/cracks in the building covering: This is common with stucco.

It was the “worst house on the block” but needed heavy cosmetic work to make it one of the best on the block.

It is very possible that he wants this to cover himself in the event that he sends you leads on Sellers that may be FSBOs or not represented.