It is easier to obtain financing for the purchase of a tenant occupied property than it is to cash out in the current environment.

Both were the nicest properties I ever bought, and in both cases they were occupied. 

Executed the plan, keeps the units occupied.

Short Term Rental - This is the permit you would apply for when pursuing a non-owner-occupied STR in the R-1, R-2, R-3, RSL, RSM, PR, OS-1 and OS zones. 

assume its owner occupied - why not have the seller seller finance a portion of it?

This way, you can continue scaling your portfolio, leveraging the benefits of owner-occupied financing while building equity in each property.It's a great way to grow your portfolio while taking advantage of favorable loan terms typically reserved for primary residences.

It can't have any more guest rooms than it already does and the commercial use loses its legal non-conforming status if the main residence isn't occupied by the property owner or an onsite manager. 

If we are planning to occupy the upstairs, what codes apply downstairs to an accessory dwelling?

The tenants - those actually occupying the rental - are ultimately responsible for the rent.

Any owner occupied loan would work FHA or low money down conventional.