In fact, I don't even know anyone who got nailed for anything above insurance limits with a single family dwelling, 1-4 units.  

There are solutions for all of these -- yet no one will close on an occupied property if they can humanly avoid it.Maybe not for a first timer, but none of this means avoiding the property.

I would have to say from a human beings point of view that the number one attribute is to "be nice" !!!

Sounds like you are all set up to convert it and make it a legal ancillary dwelling.

However, if you're thinking someone else will care more about protecting your money than you do, then it's time for a refresher course on human nature. 

We, as human, tend to take the path of least resistance.

The time and process taken between now and renting lower costs dwellings is TBD.

Justin:When Thomas asked about legal non-confirming, I do not believe he was implying your house is not compliant with building and fire codes, but was asking if it conformed to local zoning by-laws.We have student housing as well and it has been our experience that most university towns have occupancy by-laws limiting the number of un-related adults in a single dwelling unit (usually to 3 - 5) which are specifically aimed at student rooming houses.  

For ex, workers for Habitat for Humanity and when purchasing a property for a direct family member, you are allowed to work on the home or manage work without a contractor's license even though you personally will not be living there; otherwise, the owner/investor needs a license. 

I'm currently considering taking action on recruiting as many private money partners as humanely possible for my RE deals and have thought up taking this route: executing Calling up a couple local financial advisors and private wealth advisors(since these are middle man connections to money) and pitching them my private lending opportunities in which I want advisors to present it to their clients and whichever client wants to do deals with me, I'll have them available for funding my deals and I'll pay a "referral fee" to the advisor for his/her help.