There's a good chance the issue(s) you face has already been discussed and answered.Ask questions in the appropriate forum.

For the proceeds I have to pay seller I would have to issue him a 1099 right?

Quote from @Robyn Henderson: My family's 3 unit prewar building in Brooklyn recently had plumbing issues and I'm debating renovating each of the bathrooms.

Maybe call those owners and see if they've had any issues?   

If you sell directly to a homeowner, the issue can come back on you and bite you in the a...  

@Clark Harbaugh, Given the favorable tax rulings over the last few years (in particular revolving around trusts and their equaling a beneficial interest in the underlining propery) the IRS has actually been much more lenient (or at least silent) on these issues. 

This things is a spaghetti road map of issues. 

The problems you mention are just known issues.

Tenants have dog allergies and chronic asthma; the persistent smell and the dog hair found in multiple areas so far are harmful to our health and have, can, and will exacerbate health conditions of tenants.We believe the issues described above present a materially dangerous or hazardous condition to the health and safety of our household.

For the community development dept, you'll need proper plans (architect), site survey, permits, etc. when you're ready.