Regarding insurance, the only way we can get it is through the CA Fair Plan, and it’s steep.

comps are what determine ARV.and for a BRRRR to work you need a fairly distressed property. 

The request for 2% to cover closing costs seems fairly normal especially if they are more than ok with paying asking price. 

Buying at the mortgage balance (~$150K) positions is under the fair market value and can trigger gift tax rules.

That violates fair housing rules.

It is a fairly automated process for them

I have been struggling finding fair priced reliable contractors in my area.

However, the property’s cost basis (what they originally paid) carries over to you, meaning if you later sell, you may owe significant capital gains tax on appreciation.Alternatively, selling the property at fair market value eliminates gift tax concerns, but your in-laws may owe capital gains tax on any profit.

Renting the farm to them at fair market value with a formal lease is essential.

Doesn't mean its a necessity to have it formed here but it is a fairly straight-forward process.