You can exhaust all your resources, "fighting city hall" in an ambiguous case, for which the judge will most likely side against you, and your best case scenario is merely a moral win.

If the down payment will exhaust all of your cash, you should save up more first so that you have (1) 6 months of living expenses and also (2) reserves if anything goes wrong. 

Rotten plastic dryer vent exhausting into attic.  

I approach all prospects to try and preserve as much equity in the property in the least amount of time and am willing to exhaust all options before moving onto the next most feasible option.

@Matthew Madrigal from a tax prospective, the longer you hold a property, the less and less advantages the taxes can be as the principle payments overcome the interest payments and the depreciation become completely exhausted.

========Regarding adding a unit, some things that come to my mind are (not an exhaustive list):Making sure the Zoning will handle the extra unit, and you have some plan for parking the extra vehicle(s), and that the sewer and water service can handle the extra load, as well as the electrical service drop has enough extra amperage available to satisfy the electrical code requirements of another unit.You may also want to look into if there are extra fire requirements for three units, such as having to add a fire escape, or fire extinguishers, or interior sprinklers.And sometimes major electrical work will require the whole building be brought up to current electrical code.A local architect with local building upgrades like this in his portfolio might be a good addition to your Swiss Army Knife. 

The other option is to see what the cost of an umbrella policy is (will give additional coverage if the liability on your auto or homeowners is exhausted).

Otherwise a simple LLC with two partners wherein the operating agreement spells out these same things may work well.The key here is to communicated exhaustively about the "what ifs" and "who does what and when" and "if you drop dead, what do I do", etc. 

It gets exhausting!

This means when you do want to get credit you may need to temporarily unlock your credit.The above steps don’t provide guarantees and are not comprehensive or exhaustive, but collectively they can substantially lessen risk.NMLS required??