We are planning to put up a coat of new paint as well as oversee contractors to replace the worn out carpet (has to be done, it was destroyed by the last tenant).

The kitchen has good solid cabinets that will get a coat of paint or gel stain and new laminate tops.

Some of these sub-markets are small enough that investors can come in and shift the neighborhood, but unless you have the capacity to do that or are part of a team with that kind of capacity, you would just be hoping to get lucky and ride on some other investors' coat tails.I can't explain why some areas are street-by-street, but that has been my observation (and the observations of others) in many of the sub-markets.

Besides this just a new coat of paint in one of the units.

Sorry, there is no way to sugar coat it.To answer your last question first, anybody can sue anyone for any 'reason' at any time. 

Have them come to you with their CMA, and ask those agents what  ideas could help you sell the house.Sometimes a fresh coat of paint and some flooring could be cheaper than a price reduction.

Nice curbside dresser with a fresh coat of paint!

Zinsser Mold Killing Primer is a water-based fungicidal protective coating that can be used to paint over and kill all existing mold, mildew, moss, fungi, odor causing bacteria and any other fungal organisms." 

If the property can compete at market value rent with the properties that surround in its "As-Is" state,  then yes, slap on a coat paint, replace the carpet, shine the hardwoods, buff up the walls and replace the wall sockets and the door knobs. 

It's about 130 or so sheets worth of work along with some skim coating/repair work.