We added a mini split system, new floors throughout, rebuilt the deck, added windows, repaired waste lines, roof, siding, stucco, cleaned up the basement and remodeled the kitchen and bathrooms.

You can build in sound proofing, but honestly I'd go with 2-3 floors for each so you don't have the tenant downstairs complaining about the one upstairs walking around at night.For costs-it could be more or less than new retail-depends on finishes of each. 

I came back with some detailed floor plans.

I thought about buying a non developed lot in cash, subdividing it, clean it (take out trees and bushes), get permits, and start building 1 property sell it and then build the second one...The problem is that I am afraid of going this route because of messing with sewer, water, electricity...

You can file a Chapter 13 which will protect your home and its a clean way out.When you file a CH.13 BK its not the end of the world it simply protects your home since its your homestead from foreclosure.

I don't have exact floor plans, so I'm not sure if it would qualify for the 51% apartment sq. ft. necessary for a mixed use dscr loan. 

offering now 1.25M for the 1.495M listed property, with 25% down, no bridge loan, got an 8% offer. there are over 7 offers so not sure that this will be competitive but we will see.estimating around 60k total renovation as only 1 unit needs a full reno, other 2 need new kitchen cabinetry, nicer bathroom vanities and flooring. waiving inspectionHere are the updated rent forecasts, a 2bed can rent 2200/m and a 3bed around 2500/m in this area very close to Yale, 1st year negative but after that should be good CFhttps://docs.google.com/spreadsheets/d/1bLcUAKN5j8CpIKhcBKaD...

This will allow for you to cleanly pursue an eviction if ever needed.

@Daniel DeBruin, this is really all market dependent and how much you want to spend versus how much it will impact both the rent you can achieve as well as the quality of tenants it attracts.When it comes to design, it is all a bit personal opinion, but I will say: contiguous flooring always trumps mismatched, hodge podge flooring.  

If it persists, I would hire someone to clean it up and bill the tenant back.