These houses don't use sheetrock it's styrofoam insulation sandwiched with two aluminum panels.

The plan is to cut 4x8 boards by half and install them and use basic wood molding throughout the basement which is about 1000sq feet$4000 for drywall replacement, plaster of about 5-6 inches wide and moulding$2000 for paint if we want thatInsulation will be $800 extra if we want to do it - they plan to use fiberglass insulation and push them up all the way into the ceilingDoes this look reasonable, even for NYC?

In Milwaukee, I'd need 2 exits from the attic and 50% of the space has to have at least a 7 foot height on ceilings.Two things you want to check: both requirements are correct, but on top of that the city is getting reluctant permitting 3rd units: 50% more occupants mean 50% more water and sewer and 50% more traffic and parking.The other issue is that the cost of finishing a thrid floor with proper insulation/ventilation will run about $50-60/sf and only makes sense if you can get strong rents. 

Everything Ken said plus plaster walls, no insulation, higher electric bills, walls sweating when its humid in florida and the resident leaves front door open, damp smelly houses, Pealing paint, wood rot, old windows, crawl space under the home, bdrm and closet doors that don't close properly, electric locks that the old front door doesn't like as the door is not aligned correctly, Cyrstal knobs that fall off, old thermostats with 2 lines but my new thermostat needs 3 lines, critters in the fireplace....

.; remodeling an existing space; replacing or adding AC, flooring, insulation, roofing, etc. 

Thickness of the overall product can matter as well as it can have a more realistic look and better cushion (and sound insulation).

The microscopic distance of the attic vent, insulation spacing, the smoke detectors not being in sync when 1 rings etc. 

The heating units themselves are new high efficiency modern units and are working as as they should but the home just doesnt have enough insulation. 

The pros is it's got a great exterior with steel siding and a new roof. also has a 1200 sqft shop that is insulated.

A secure building will appeal more to potential tenants and provide peace of mind.Energy Efficiency:Ensure the property is energy-efficient with proper insulation, energy-efficient windows, and appliances.