The other thing we are seeing here in RI is legislation targeted at students.

I am unsure of how to structure this proposal.

Preach it, @Joe Splitrock...it seems that politicians who frequently tout legislation to confiscate more wealth from businesses have had little to no practical experience running businesses, and don't always appreciate the impact on the free market.  

Finally, there will be federal taxes beyond beyond income tax, since you are considered running a business, you'll be liable for self-employment taxes related to the business income from your nightly rental business.The proposed legislation limits the total number of nights to 90 per year (for units that are not owner occupied, like a home).

Would I propose a  6-8% return on their investment within a year and/or 20% of the price that the home sells for if it is ever sold.

In any case I think the cousin thing is something you can look into if you have any unrelated individual legislation in your area.

Having the repairs approved and assessed should make the out going owner supply the money for repairs, however if they are only proposed and not accepted they will not be bound to pay for anything other then what is in your purchase agreement. 

I can't say for Ohio but going through this NJ we got an appraisal for the date of death and one for the proposed sale.

If the seller is even mildly agreeable, what would be the best way to propose this? 

Independence is proposing mandatory rental inspections, that landlords would have to pay for.