By no means am I saying you should force someone out, but you have given them ample time to find a new place and if you gave them a notice of non-renewal, I'm sure they'd magically find a place to live in no time.

After looking at it, there is opportunity to expand/add a bedroom in the basement along with creating ample parking in the rear.

Given the current market in my area I do worry that out of state investing is more attainable, though not ideal.I look forward to meeting new people and learning as much as possible.

Can I foreclose on the person and attain the 6 unit rental in return?

I truly see this as a "new norm" in the truest economic sense, which means under a free market system 1) it will require a time of resource supply coming amply available 2) new servicers enter of existing servicers in a fight for market share make an incremental discount on prevailing margins, where ample margins exist 3) time, lot's of time for this cycle to slowly incrementally play out until prices come down to a "market" sustained rate that margins don't have that "play" to cut additionally, and we achieve equilibrium. 

Bottom Line: there are ample supplies of vacant retail and commercial properties, but we need to overcome the cost hurdles to convert these buildings to affordable housing.

The 1% rule is impossible to attain in any interesting location.

In order to attain 20% equity to refinance into a conventional loan by the end of the first year, should NWROI be a large concern for me?

Just depends on what your goals are and which route helps you attain those goals the best.

There is ample parking in the driveway for the two units.