I wanted to get the opinion of others on what the best strategy is to deploy capital back into the properties to in order to reduce our taxable income while also continuing to build wealth.

It yields a higher quality clientele reducing the risk and these areas typically appreciate better over time. 

In our market converting a SFH into a duplex (if even possible) can reduce the ARV.

But you can still optimize portfolio performance while still reducing risk.  

That will kill what is on the surface and having it damp will reduce what gets in the air while you remove the drywall (with proper protection-completely suited up). 

Your rough math shows a 7.5% ROI, which can be improved by increasing rent over time or reducing costs.

It is a bargaining chip that could help you reduce the price.  

If you invest with someone doing it for decades at 200k or more your risk can often be way reduced due to the knowledge of the sponsor.

This is to ensure I’m buying a property in a good neighborhood and that it will be easier to rent out the rooms, reducing the risk as much as possible.

Partnerships pool resources and reduce cash needed.