The place has at least one unpermitted room and a bathroom and a few other building code violations.Does anyone know how to navigate this hairy situation?  

Once my parents told me our tenants bathroom was nicer than their own I quit upgrading unless I had a complaint or there was a serious issue.

If you have been using expensive vendors, consider switching to more affordable service providers or negotiating bulk discounts for regular services like landscaping or repairs.

My other side would say "If you want to control your life, pay the cost, take the risk, buy your own house and have two bathrooms" but that isn't nice, so I try to stick to my pleasant negotiator side. ;-)

Selling them at a discount for $3,700 total. 

I have seen DSCR rates as low as 6.5% with discount points and actually a credit to borrower for a solid credit and low LTV in NY. 

So are you saying you bought it at a discounted price because rents were low?

Unfortunately, this often came at a big discount.

So I sent an offer in a condo that was priced for a great price great location all the appliance and bathrooms are brand new..

I would focus on a few things:-What is the discount you are getting for dealing with the situation.