You want a high return on investment.Bottom line is this: add up all your expenses, subtract them from your rental income, and the difference is what you'll pay to live in your half of the duplex.

Anything she does going forward she has to pay for, get permission for, or have it subtracted from her security deposit at the end. 

A 10% emergency reserve is added off the base budget for any cost overruns or unexpected expenses after closing that occur but if never needed it is subtracted from final loan principal.So while not as easy as a hard money loan and with lender oversight, this may be an answer in this situation.

Gross rent must be subtracted by expenses such as Mortgage and utilities

Subtract out our outstanding loan balance for $325,000, commission of $22,800, and $2,000(?)

One other point is some people include the rehab in the 70% while others subtract it out. 

to analyze a deal i take 50% of gross rent + mortgage + insurance and subtract it from gross rent, if there is money left over the place should cash flow. with interest rates so low it doesn't seem very difficult to cashflow at 10% or even 5%. 

So any tenant-related damages AFTER that, can be subtracted from the security deposit because I will have the picture proof.

Of the 30%, they subtract out utilities and whatever is left will be the tenant’s rent portion.

Most inspectors will want to peek behind the walls and you may have to pull all the drywall so they can see all the framing, plumbing, and electrical.Definitely adjust your numbers on the deal ignoring that square footage and subtract any costs that may be associated with demo or corrections from the purchase price.It might be worth just getting a preliminary inspection done by the city just to give you an idea of what it will take to get it approved.