Your first concern should be the unauthorized occupant.

Drew NA I want to point out I am not an attorney but I can tell you from experience, once you have fulfilled the first year as an owner occupant, you can pretty much do whatever you which with your property.

What if the rehabber after the rehab sells subject-to my existing loan to a owner occupant, does that now become a consumer loan?

The big proponent of an owner-occupant is being able to get into real estate with little money down and start building a rental portfolio.

Asking for $290K, expected the total revenue of $64K per year (with 55% occupancy rate based on airDNA data) for the main structure only.

Especially for SFR see the roommate ordinance:  with a single family home you literally have no control over the number of roomates the tenants choose to bring in,  all they have to do is claim an extremely overbroad "family" relation to bypass all screening and all occupancy limits.   

It sounds like you need to find out from the building department what the inspector actually meant, but if it's an issue critical to issuing a certificate of occupancy I don't see how you could get a renter in first.

Then again, its much easier to get financing as an owner occupant of a 4 plex maybe than to get financing for four different homes. 

It really does take about two years of ownership and rental occupancy before you know a property's weaknesses very well.

Ask for market occupancy and rents.