At that time we could renovate the ground floor apartment and potentially turn it into (2) apartments for a total of (5).My questions come down to how do we deal with the existing 40k mortgage, whether we can make it work so her parents aren't paying much in rent, if anything at all, and whether or not we set up any legal entity, like a trust to help the legal situation of paying off her sister down the road. 

Or are we allow them to continue to  purchase these properties, let the value go up, then sell them tax-free?

Use a quitclaim or warranty deed to transfer the title, and be prepared to pay Chicago’s transfer tax, calculated at $7.50 per $1,000 of the property’s fair market value.

@Keith Mintz Will you be running the house or leasing to a company that does sober living.

Mounting shelves, a TV, or other large items that requires screws, bolts, or anchors should be regulated by the landlord and charged to the tenant. 

They are definitely responsible for starting the fire, whether utilities were on or not.If tenant has insurance, they should file a claim.

I think another trick is, can you get a mortgage or is it an all cash deal?

However, you must take care of the reason why it's happening.  9 times out of 10, it's a leaky pipe behind the wall or a humidity issue.

Medical pros, job relocators, and digital nomads are looking for comfy pads.Join online groups like Furnished Finder, Nomad List, or local Facebook groups.

Look at the amenities offered by top-performing properties in your area and aim to meet or exceed their offerings.