The most IMPORTANT part of ALL of this is to make sure you are working with a loan officer that has the experience and know exactly where to take your loan to make sure you can  ADD back expenses or the LO runs it up the flag pole upfront with the lender to get the green light.  

Or maybe even just focus on properties with a very light rehab?

You need to be a natural salesperson.DO take some sales training classes, or get a job in sales.

Can any experienced Biggerpocket users shed some light?

RE by it's nature is illiquid, never totally passive.Index funds have RE beat on both those aspects.Therefore, I don't see why I'd choose to invest in something with less liquidity, and not as simple as index funds, when I'm getting about the same return as them.

Some people call it speculative investing, but it doesn't take a genius to know that people naturally want to live in places like CA, Phoenix, or Florida. 

Can anyone throw some light on whether insurance company pays for the property damage (with basement rented) if there is a fire or not?

People do what they need to survive and become who they are around (plus what they see) if the only rich people they see are the Chicago drug dealers on the corner, their minds naturally tell them that selling drugs is how they get money. 

$5,000 - remove wall$1,000 - paint kitchen cabinets$3,000 - paint $1,000 - remove paneling, repair drywall$1,000 - new light fixtures and bathroom fixtures$2,000 - new countertops$2,000 - new appliances$6,000 - new flooring (laminate, carpet, tile)$1,000 - new garage door$1,000- paint siding$3,000 - contingencyTOTAL Rehab - $31,000Those are just things that are obvious from the pictures.

What you should be looking for (again, my opinion) is something that is a light or cosmetic rehab that doesn't take months to complete, the market is good with low days on market.