Just find one that fits your goals..

In order for me to be able to move in I would have to combine two units to be able fit my family.

In terms of your grandfather living there as long as he's not the owner having a dwelling fire/rental property insurance policy is appropriate.As @Greg Scott pointed out he should have a renters insurance policy whether or not he's actually paying rent.In terms of liability coverage, that depends on what you have to protect so there's no one-size fits all approach.

While List source is a great resource , from my experience it is a bit costly; I wouldn't  recommend it because you are charged per prospect lead that fits your criteria and using Propstream you receive unlimited leads that fit your criteria!

Please DM me and we can schedule some time to chat about your requirements and see if a Tier 5 VA would be a good fit.   

If you’re comfortable managing a rehab and want to build equity quickly, the older townhome might be a better fit.

You can use this to help offset expenses if something bad happens while you begin the process of taking back your house.There are certainly risks involved, but you seem to imply that this is likely the best deal that you will get so you need to weight the pros/cons and see if it is a good fit for you.The alternative is to ask if instead of doing the deal sub2, if the buyer is willing to buy the home on a wrap. 

You can download a list of interview questions from National Association of Residential Property Managers (NARPM) and that will help you find the right fit.

PHEW.. bad out fit that NW RE for allowing a client to suffer like this. 

Most of the time a condo/townhome won't be the right fit due to condo fees, hoa fees, etc that make it more costly for the ownership but also more management intensive.