What is the best legal structure to assume his existing land contract while either concurrently paying him or writing up a 2nd land contract to the seller past the 4 years on the current land contract?

Also does it impact mortgage rate and insurance also?

Best of luck! 

I am horrified by this overreach, and trying to figure out my best path forward.

If you properly screened the tenant, I wouldn't worry he is trying to negotiate the best deal possible.

When we purchased our third home, we did not qualify for the rate as a second home and had to pay the rate as an investment.

I wouldn't expect much FED rate changes.

I imagine there are a lot of 3/2 that probably sleep 8-10 and if you can offer a slightly larger bed count and a cool game room/theme room you can differentiate yourself a bit from your competition and get some extra revenue through slightly higher rate (extra person fees, etc) as well as an overall higher occupancy. 

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Which metric is best to use when accounting for CAPEX?