When I sit down with clients, I always discuss (1) their personal assets, and (2) what their current investments portfolio and other business ventures are before discussing (3) their future goals.

You need to know the market, and look into the rent roll and determine if those opportunities exist, or are you losing money due to existing leases-another reason to justify your offer. 

Nice way to lose a customer.Warning for anyone: Keep away from using Geico for homeowners--4 insurance shifts, and every single one included wrong information. 

Even if you lived there for a year or so and decided to sell it, you could theoretically even lose money on the sale, but what you gained from house hacking for that period of time would out weigh that loss.

If money is an issue, right now leave it as it is, and do it when you make some money from the venture. 

You can lose your EMD.

You clearly don't have any experience since this is your first venture.

They should not be venturing into this territory since they do not have the skill set to safely do the job. 

Now if you are losing sleep because of the 4% than the amount is too much. 

You could prolong your financial suffering and continue to supplement his rent but your best option would be to go directly to $1550 and stop losing money.