In response, I had a plumber and a water restoration company come to assess the situation.The restoration company cut into the drywall, and the plumber thoroughly inspected all the pipes, performed a leak test, and conducted a pressure test.

As long as all the rooms are decent size with closets it could work and you could get closer to what you want in rent. 

I've heard there can be challenges with inspections and paperwork delays, so I want to get a better sense of what to expect and how to navigate those potential hurdles.

I always do current home inspections to see how they live today and if I can't (e.g. they're moving in from out of town) I'm probably not going to rent to them.  

I know a buyer that would offer 10% down for earnest money, but he made it contingent on his personal inspection of the property within X days.

We offered 30K under asking and got it under contract, after the inspection we were able to renegotiate another 10K off of the property due to repairs needed.

Yes, the bi-yearly nit picky inspections can drive me crazy, (torn screen , etc) but in the long run it’s worth it.

I am happy with 70% but attain closer to 85%.  

Mike, My recommendation would be during due diligence for a potential purchase, ask for past 12 months of all utility bills, property taxes, and any other municipal requirements like rental permits, occupancy inspections etc. 

I’m not your buyer but you might want to shop the deal around or get it on the mls and then get closer to 5% total.