I've posted extensively about coastal Oregon vacation rentals and their challenges and production potential, typically a strong STR will generate roughly 10% of valuation in gross annual income. 

Don't forget about loss of income/rent...that being said this is a very broad question and I'm not certain if you think you have too much coverage or it costs too much or both...

The city's strong rental market driven by a growing population ensures a steady income stream.

So correct me if I am wrong but doesn't an increase in rents decrease the cap rate since the property is more stable with a wider spread between gross income and the operating expenses

Does he have to report the income he received this past year and declare it a rental event though he would like to move back in eventually?

If you really feel you are going to miss out on income by charging them 20 days vs the full month you could try and split the difference and charge 25 days. 

A down payment of at least 10% is advisable unless you have strong cash flow from stable income sources.

We plan to convert the sale proceeds into multiple properties to create passive income. 

It appears they calculate gross ROI based on gross income divided by property price.

The debtor may need to propose a modified plan that reflects the additional income.