There are tenants in the other side already so we will need everything solidified for them by the time we get the title and we are set to close, which is February 19th.

You also need to register AirBNB units with the city, which means you can't legally do an AirBNB with a non-conforming unit. 

If they fail to pay the taxes, plus fees and interest, within that time, then the property legally becomes yours.

At that time we could renovate the ground floor apartment and potentially turn it into (2) apartments for a total of (5).My questions come down to how do we deal with the existing 40k mortgage, whether we can make it work so her parents aren't paying much in rent, if anything at all, and whether or not we set up any legal entity, like a trust to help the legal situation of paying off her sister down the road. 

I was debating if I should partner with a friend or family member who is willing to work on a property together. ill be sure to make sure things are done legally and fairly so no one get short sighted and things don't get messy.

Be prepared to come in with additional cash to close due the the appraisal.   

If you represent the leasable space as what's in the condo plan and they accept then that's the space they're paying for, I'm not aware of a legal obligation one way or another.

If you need financial help, ask under the "Finance, Tax, and Legal" forum.

Appraisal is not the same thing as legal.

The Yale Law Journal article, "Zoned Out: How Zoning Law Undermines Family Law’s Functional Turn," highlights this issue, noting that while family law has evolved to recognize diverse family structures, zoning laws have lagged behind, potentially hindering innovative housing solutions like co-living.Challenges for Co-Living InvestorsFor real estate investors interested in co-living, these restrictive definitions can lead to:Legal Barriers: Difficulty obtaining permits or approvals for co-living spaces due to non-compliance with traditional family definitions in zoning codes.Operational Challenges: Potential fines or legal disputes arising from housing arrangements that don't conform to local zoning definitions of a household.Market Limitations: Reduced ability to meet the growing demand for affordable, shared housing solutions.Advocacy for ReformThe Bloomberg article, "Why Are Zoning Laws Defining What Constitutes a Family?"