Also, letting them know now that I expect the place to meet certain “cleanliness” standards for health and fire safety reasons.Anyone else have thoughts on this situation?

You'll have the safety of having earned equity and protecting it.

And still made zero today.I prioritize convenience and heads in beds.

Disadvantaged to be aware of include fire and life safety, increase in structural support, difficulty in construction logistically.Your best bet is meet with a local GC.

I would first make sure anything that involves safety is fully fixed and tenant ready. 

From here is where there are several choices:Stay put in the primary residence, a single family home, and purchase another property (SFR) to rent This is, slightly, my option of choice I will have a place to live free and clear, and wiggle room & safety in case anything should go wrong.Rent the primary residence, and finance another primary residence Sell the primary residence and split the equity for down payments on both a rental and primary residenceMy least favorite optionIt incurs the most debt and risk. 

There were a small amount of negotiations around securing tenants in the downstairs apartment at the price they identified and cleaning up some odds and ends (asbestos abatement, fire safety items, etc.)

Therefore we look out for their best interest as well as the help, safety and welfare of the public/anyone whom will utilize the space(s).  

Due to safety concerns, this often shows up in their report, but is "inexpensive" to repair. 

If it's not a safety hazard, I would be inclined to just remove it.