Some smaller town governments can be inept or corrupt (the mayor of Muncie in under FBI investigation). 

As a new REI, and current Insurance Agent, I am really curious to know if anyone investigates their property loss history when analyzing deals. 

I just read this on craigslist - do you think this is worth investigating, or does it sound like a scam?

This is an area that I've been investigating for a couple months.

One of these is a bank that I've dealt with on previous projects and they didn't flinch (actually, they were rather excited to work with me on this) when I put the initial thumb-to-the-wind figures in front of them, I've got a couple well-placed contacts in the city's development/planning agency and will be speaking to them today as I'm also investigating the possibility of establishing a public transportation hub on-site as well.

The only thing that comes to mind for me is hiring a private investigator/skip tracer.

It would be wise to investigate. 

I'd definitely hire an insurance adjuster to investigate the situation--they don't charge unless/until they collect.To answer your questions:1. buy landlord insurance (to cover rent loss)  YES, DEFINITELY2. add sewer backup to our home owner insurance  MANY WATER COMPANIES OFFER SEWER LINE AND WATER MAIN INSURANCE--CHECK THAT OUT FIRST.3. ask the tenants to buy renter's insurance (what if they say no?) 

It took a Bloomberg investigation to get the facts right on this.

State license fees, vary, say $100 with your background investigation...depends.