The IRS expects your cost seg report to be "factually intensive", "supported by corroborating evidence" and performed by a "qualified individual.”

It's a high risk area, I would expect a lot of turn over/vacancies before you come across a qualified tenant.

From how you describe your situation, I don't think you'd qualify for the construction loan, they are very conservative on their underwriting.  

From what I can tell, it lets investors buy a property that probably wouldn't qualify for a conventional loan (these properties were...not livable). 

Talk to a lender immediately and see what you can qualify for.

First, qualifying as a real estate professional for tax purposes requires more than just 100 hours of participation.

Have you gotten preapproved yet to know what you can qualify for?

But you left out a keyword “qualified”.

Once tenants have viewed the property I go in order of the first qualified tenant that says they want to proceed to the background check.

In general, a tenant is responsible for damages caused to a property, and even disabled tenants who qualify for reasonable accommodation and who alter the premises to meet their needs are responsible to put the property back into its original condition at their cost.