I believe the play is to either improve the existing building and raise rents or the zoning allows for apartment buildings and the lot is considerably big, so maybe build new.

Based on the info you provided, there are strong red flags.

However city is imposing a good amount ofimpact fees based on the bedroom count - which accounts to close to $40 k , which i cannot afford- Ibought the house for myself to reside and cannot afford to pay this.We verified with city prior to buying and theyconfirmed it is residential zoned , however never mentioned about any impactfees.It is residential zone - MLS shows it as 3 bedroom 2baths - it had a extra unit  in the back and also a inbuilt rolling bed on 1st floor for the main I am stuck here- they are asking to prove it was usedas a residential -ever - any guidance would be appreciated on this.

Traverse city has str limit in downtown area but certain zoning are exempted.

There would be many more hoops to jump through with zoning and permitting.

Have you checked zoning to verify this type of facility is allowed?

I understand that short-term rentals are only allowed in the Commercial Zone and Historic Core Zone.

When people here send me private messages or ask me on a call, one of the many things I'd tell them if they want to buy pre-construction is to check the developer's construction license and that it complies with the zoning rules (and I'll tell them if I know what those are).You woudn't believe the amount of people that are ready to put a sizeable amount of cash on the table but won't spend the little extras needed to make sure they don't lose it.

If your prospective property manager cannot provide a number of references for you, consider it a red flag.2.

Most investors are probably small and looking for similar deals one after another because it fits their buy box and comfort zone.