Game changer but you can re-work you offer to accommodate ? 

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Tell the lender what you want and if he can't accommodate, find another lender. 

Looking for a place downtown, to accommodate those that don't live in the Elk Grove area.

While they don’t have unlimited access to public spaces, the Fair Housing Act mandates “reasonable accommodations” for emotional support animals even in buildings that don’t allow pets.If the dog is truly an ESA, I would request a medical letter from the doctor that told her it was ok to have an ESA.

Might run into a bit of a slow season in the winter (as expected), but you can accommodate a long-term stay during slow season so you can remain 100% occupancy. 

I would suggest that you call more lenders, to find one that can accommodate.

And I had rented my SFR to 3 room mates before, but my driveway can park four cars, and being a corner lot, accommodate 5 more.

Andy,Unless a project is straight forward  I will always go to the building dept with a list of questions, our building dept is always more than accommodating and takes the time needed to answer all questions.Explain to them what you are intending to do and you will be guided to the correct information.You will not be forced to convert the property.In our jurisdiction you would need to sub everything and depending on how many projects you are doing a year may need a contractors license.

While not a lender myself, nor an attorney, I can say that many of my former CRE industrial clients have bought buildings that they originally occupied 51% or more and then either bought another larger building to accommodate growth or reduced in size or went out of business and leased the entire building(s) out to tenants.I think the occupancy rule is in place to discourage investors from accessing SBA loans for the simple privilege of using these funds for speculative real estate investment.