Commercial loan for 80% of value.Rent $1050/monthThe policy choices: Cost Policy A $726 annually Policy B $1,008 annually Coverage: dwelling $113,296 $352,300 Other Structures $2,000 $35,230 Personal Property $1,500 $3,000 Loss of Rents $22,659 $35,230 Landlord Liability $100,000 $500,000 Medical Payments $500 $5,000 Deductible $500 $1,000

Much less commonly used.Most Personal policies (Homeowners & Dwelling Fire) from the companies providing the best rate (on a per $1000 of coverage basis) will be written on Replacement Cost.

If he completely renovated it out, he would be selling a turnkey property (to a rental investor) or a dwelling home (to a retail buyer). 

I was going through the checklist PDF provided by Hayward city (https://www.hayward-ca.gov/services/permits/accessory-dwelling-unit) and one of the requirement says Are you the property owner and do you reside on the property?

Minimal Rental UseThere's a special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days.

Whomever owns the property/building may be able to get a vacant dwelling policy to get you to the closing. 

I can only speak in regards to Minneapolis, but a conversion fee is described by Minneapolis as a type of inspection fee: “When a dwelling is converted to rental property or has not had a license for the past 12 months, it must be inspected for compliance with the Housing Maintenance Code.

Abandonment of the dwelling unit shall be deemed to have occurred when: [...](3)All persons entitled under a rental agreement to occupy the dwelling unit have been absent from the unit for a period of 32 days, and rent for that period is unpaid.Especially in class c/d, when they're gone, they're gone.

You need a vacant dwelling policy with course of construction coverage and builder’s risk.

Notices stuck all over the dwelling.