We got our deposits back, but we lost all of the legal fees, bank loan fees, survey expenses, personal expenses, etc. that we had invested in the deal.  

I'll go talk to a few tenants, figure out the management situation and do a rent survey. 

Now, here is where I see improvement and some of my concerns:- After surveying rents in the area I have found that current rent of $1950 is $250 low and they haven't been raised because of the relationship of the tenants to the landlord (not a business decision)

Get the survey from the buyer3.

I can't offer too much help because I don't know your area, but if you've done a solid market survey of surrounding properties and your numbers are in line with them, it could work just fine.  

Add to that the cost of the demo of your existing property and if the properties next door are sitting on the lot lines, you'll need shoring, which is an additional, minimum 10K each.You'll have to look into how many sq you can build per unit, and then determine the value of those particular units.After you know what you can sell them for, deduct the construction cost, lot cost, financing cost &  holding cost and now you'll know if you want to go ahead with the project.A good architect will be able to inform you right away how much you can build, with only the address of the property, the zoning and preferable a survey.

If I'm not mistaken unlike some of the other "rules" this one is based on a survey of millions of units from the national apartment association. 

Maybe sending tennants a survey would work?

So one of the first physical work done on the property was an interior survey and drawing of the as-is building. 

Hi Aly, I think you'll find this Redfin survey interesting.