If you're keeping it a separate studio rental and want to maximize the space, then removing it seems to be the right move - and definitely reduces the liability.

Quote from @Paul LaValley: I live in Tucson and know Tucson really really well so I want to start here and then jump up to include Phoenix area. 

Then you will be stuck with a potential rehab project.

Then start stacking fix n flips, then MTR and LTR.

Then sold it for 434k.

The most successful people that I have heard on podcasts and met in real estate know that it is all about getting a single here and there and then going to get a homerun while doing those singles.

If the homeowner is promised new financing, a straw borrower will then be involved.

Figure out a repurpose for them, then find a buyer.  

It (2%) technically would be coming from the seller by reducing the 5% to 3% and then you get a closing cost credit for 2% at COE.

I tell people to start by picking a strategy (OOS long term, OOS short term rental, fix and flip, etc) THEN pick a market and submarket THEN look for good tools/people, doing it any other order tends to be an exercise in futility.