I work in the Pasadena area and we increase value of homes by essentially gutting them out and recreating/reimagining the flow of the house along with updating the dreary look which hasn't been improved upon for 20-30 years. 

I just want to open as much of that space up as possible after the removal of the furnace/heater and create the largest single room possible, or at the least combine the closet room and the furnace room into a finished room with a floor more comforting than the current bare concerete.

I just want to make sure this is the worst-case scenario, and that the main tenant on the lease is the one that will bear the largest risk and consequence in doing this as they are the only ones legally responsible.

We had to redo all the plumbing, add a ton of electrical, fix lots of drywall, convert one room from a large recreation room to a bedroom, bathroom, closet, and laundry room, completely redo another bathroom, replace windows and exterior doors, add a kitchen where there wasn't one, paint entire house and flooring. 

There is a large recreational athletics facility called the crossplex in 35208.

https://www.har.com/content/newsroom/Houston Real Estate Highlights in June Single-family home sales rose 1.8 percent year-over-year, with 8,518 units sold, the largest one-month sales volume of all time;Days on Market (DOM) for single-family homes declined from 50 to 48 days;Total property sales reached record levels, rising 1.7 percent, with 10,115 units sold – the first time that number has broken the 10-thousand mark;Total dollar volume increased 6.6 percent to slightly more than $3 billion;The single-family home median price rose 2.6 percent to $245,000, reaching an all-time high;The single-family home average price increased 4.3 percent to a record high of $316,463;Single-family homes months of inventory was at a 4.1-months supply, the highest level since last August and equal to the national inventory level;Townhome/condominium sales rose 4.9 percent, with the average price down 1.7 percent to $211,050 and the median price down 4.1 percent to $163,000;Leases of single-family homes climbed 4.7 percent with the average rent up 3.9 percent to $1,877;Volume of townhome/condominium leases fell 4.2 percent with the average rent up 6.7 percent to $1,662.

All units are 3 bed 1 bath and the largest apartment is 2600 SF so I wanted to see if maybe I could split that unit into 2 units.

It is a fairly reliable rental market, though, since we have the largest Army base in the world there. 

For example, our largest tenant is 20,000 SF and is delinquent on his rent, so we want to advertise his space ASAP in case he vacates.

I’ll definitely re-create the spreadsheet I am using and incorporate @Justin Fox’s info and your recommendation to run differing scenarios.