As long as they aren't staying every night and there are no parties or other concerning activities.

Therefore I need to close the deal, then own the business for 90 days to secure long term financing.The home is currently cashflowing ~$10k/mo. 

There's typically a time limit to how long that lasts, but the fact is this agent helped you and is considered the "procuring cause" of the deal, so you should honor that and ensure they are paid.It was unethical of you to approach the buyer and try to cut out the agent, and it is definitely unethical of the seller, which makes me question whether the seller is someone you want to deal with. 

I found my city, found what I thought was a good deal only to find out insurance rates were 2X more than in my current hometown for a long term rental.

I think it is fine as long as their belonging are covered under someone's renter's insurance, but would most people request each individual tenant's have their own Renter's Insurance?

Looking to buy a SFH in one of these counties, with the intent to convert a basement into an ADU and rent it out (short or long term) - and live in the main unit as owner-occupied.

Less people are long term tenants here, though, so expect more turnover.  

You can always negotiate changes to an existing contract as long as all parties agree.

There are a couple of FB groups with thousands of members for this market, with wholesalers posting houses all day long. 

Lawyers may have to be involved, thus delaying and complicating the process, however, as long as nothing was done with intent of causing whatever caused the claim, they'll cover it.