Would she need to be an owner occupant in the eyes of the lender.

A home (whether primary or investment) in my eyes is considered as a savings account once you own it - a store of wealth. 

I understand that with traditional mortgages, it is unlikely to receive lending that incorporates speculative renovation costs.

@Fumi Maher both can work well but you'll find one may be more attractive to you personally.I've done all duplex househacks and incorporated MTR and STR when it made sense.

The answer to that question will probably be eye-opening for you!

Doing this will open your eyes to how people waste space in real estate today.  

We are newbies, and don't want to miss out on a great investment and tax savings opportunity, but obviously want to do everything correctly in the eyes of Uncle Sam.

I shouldn't be catching these things...

Agreed - my analysis incorporates this. 

Unfortunately cap ex usually catches up to them and the appraised value rarely translates to a similar sale experience and all along the property has merely been a highly levered property.