Bad contractors are one of the main reasons why first time investors never do a second deal.

The main thing I see when coming across this is deferred maintenance.

The main reason I ask is because that is significantly below primary residence mortgage rates let alone any investment loans, if you can get rates like that I might need to make some changes on my end hahahTo answer your original question, assuming all else is equal long-term fixed rate debt is valuable. 

FHA is easier to qualify for and allows for higher debt to income.If you have not spoken to your lender already, you should also just look into the HomeStyle Renovation loan.

Can you do side hustles, cut down costs to get rid of these debts?

best wishes  i dont do gap funding at all.. so no.. not something I would do we do JV deals every week but we have zero debt all cash and we control the process. 

Yes, it is debt tied to a property she owns.

Lenders stopped allowing rent by the room due to modifications done to the property resulting in functional obsolescence and significant cost to cure in the event there was a default and they needed to foreclose on the home and resell it, given that the main buyer pool for single-family homes are primary occupants. 

The Heloc can also pose as a debt obstacle since its an open end mortgage a.k.a credit card.a mortgage is also set up over 30 years so it offers a lower rate and payment. 

I think the ultimate situation for what I described above (not the plan, but a possible outcome) could look like this:Rent main house by the rooms while constructing ADU.