This would reduce the chances of overrunning their budget, verify work before the next draw and verify permits.

I think you have good down side protectio—reduced rent from living there and the land value. 

The rationale being you are reducing your personal housing costs as the rented unit will be covering some of the costs. 

Get the plaster tested for asbestos.If renovations significantly reduce your profit margin, wholesaling the property to a more experienced investor might be more viable. 

When you're ready to purchase a seller concession can be a good way to reduce the cash to close and amount of equity you need to borrow against the primary.

The biggest issue for Baltimore and frankly any rust belt city is the rise of remote work, Baltimore is cheap for a major job center, but it’s not that cheap period, pretty much any area west of Frederick county or east of the bay bridge has ample housing stock for sub 300k and imo a better quality of life, so the one thing that Baltimore has going for it pre-pandemic which was a pretty solid mix of Fortune 500 companies located downtown has been significantly reduced & downtown is a ghostown now.

Once you get to around $14k you're going to scale up to $37% but you can deduct half the expenses and depreciation which will reduce your taxable amount of income..again without knowing the income this is not possible to calculate.   

Alternative income options are available but will reduce the maximum loan to value. 

Can someone review and help us understand if there is something we can skip and reduce the costs.

Definitely seek some expert advice from an accountant or CPA who can advise you on the best ways to reduce the amount of taxes you owe to the IRS