Also, I don't know if the Rent premium (the extra 20-30% rent) would count against his debt to income ratio.

Should I ask for a little extra equity?

My guess is he knows you will find termite damage and use that to lower the offer price, as you should.I would be extra careful about other aspects of the inspections also, it doesn't sound like this seller is very honest or trustworthy. 

Obviously I know the typical document I'll be asked for such as W2's, paystubs, and taxes, but it was the "extra" stuff that I need help with. 

This way, they say, they have funds in case repairs are needed.They charge an extra 10% on labor and materials if they have to get maintenance done.

I am in sales so do have some extra time body most of it is spent on other hobbies 😀.

No extra payments, no late payments, etc.

Can you be creative and make an extra (maybe less desirable?)

I am only interested in getting the job done correctly, but after thinking about the extra time I will spend, the buyer that I lost, and the extra monthly HOA payments I'll be making, it seems their inaction and not doing what was asked correctly, is now costing me money. 

Keeping that in mind, I would choose the 4 unit because the benefits of that one extra unit do not outweigh the benefits of the better financing options.