And I just read some things about insurance companies not covering losses if they determine your house is either vacant or unoccupied. 

Should I be refinancing to just cover my total project costs to pay back my heloc and other initial costs? 

It's a strange configuration, and I haven't gone to see the house yet, only saw pictures online. 

Hard to cover up cat issues, don't pay around.

I get they need to make their money to cover their expenses but don't always think of the person they are getting the home from and the consequences of it not closing for the seller.

If you took that amount and depreciated it by 25%, would it cover the full nut for your current home? 

If they go up the year after you buy for more than you paid you can easily protest yourself, show them the closing docs as well as any pictures of the property (the worse the better) and they will usually lower it to the price you paid since that is the true market value.

I will look into landlord tenant laws and start my funding venture.  97% of the asking price is high but then again if I can get a good MFR the rents will more than cover the monthly expenses, at least from what I have seen on the rental market. 

You could just cover it with 1/4" drywall effectively covering. 

Ok, that sounds great and we would definitely cover that requirement as we would plan to utilize the property personally likely around 4-6 weeks/year.