But we also like the idea of having the highest cash flow possible.

Focus on key areas first (like floors, walls, kitchen, or bathroom), which may help you handle the costs more gradually, even if it means moving in furniture or updating fixtures down the line.Also, since the tenant left it in rough shape, be sure to document all the damage (photos, receipts) in case you decide to pursue reimbursement through their security deposit or in court.

From those experiences, I know that the money saved by going it DIY or with a poor company is FAR LESS than the money lost through bad management.Huntsville is a great area, but smaller investors might be priced out of that market.

I'll let others chime in on their experiences, but from a motivational perspective, I think attending live events and getting the "conference high" is something that only happens through in-person connections and being in the same room with investors who are eagerly pursuing their real estate/financial goals. 

The cash flow is a bit sub par on this one and I anticipate some larger expenditures coming my way in a year or two so I'm contemplating this as an option.

Is it worth it to go through the proper process with the city and run the risk of a huge expense to make this a 3rd unit? 

Properties with fewer than five units are classified as residential, making the loans ineligible for sale on the secondary market through Fannie Mae or Freddie Mac.

I went through similar experience when I purchase rentals from a turnkey provider in Indianapolis.

I just sat through a free webinar they put on and it was fairly informative for being free.

Then rent the bigger home out using a property manager, allowing her to possibly cash flow and maintain that asset and let it continue to grow in value.Encourage her to consult with a CPA or tax attorney to explore the best strategy tailored to her situation.