You are asking for an exception to be made to the rules of the majority of conventional lenders out there. 

Everything he said except for real estate advice.)She also gives more wise advise: Build up reserves or safety net. 

Can he apply for an exception from the guidelines?

With a few exceptions that I do not believe will be applicable here. 

In the current market it's difficult to purchase anything (except absolute garbage) in that price range now.

I did the numbers right on the rental (at least its performing exceptionally well so far).

Have an annual or quarterly meetings in NV to do all of that - no exceptions - or your California Franchise Tax Board will come a-knocking,  As to setting up the entities, please realize that your business needs a very strong foundation and several professionals are uniquely qualified and expert in its parts

Everything in the relationship regarding landlord tenant is the same as a market tenant, except section 8 pays some or all of the rent.

So you can rent it out for a total of three years and still qualify for the 2 out of the last 5 residency and get your gain tax free with the exception of depreciation recapture.  

Your plan sounds ok except I would not want the tenants living there to know I am the owner of the home.