These two contractors may not like that area, or just had one bad experience, so it would be great if you could explore more of what other experiences people had/have in the city. 

Even if you only averaged 2.8% appreciation annually, which if you've had it 20 years I have no clue how that's true given prices have well more than doubled in that time, youre skipping over the fact that you have been benefiting from that appreciation on the ENTIRE house, not just the % you paid for.  

@David MartinezA quick search on furnishedfinder.com shows a bunch of available midterm rentals in that area so you can use those to help guide your price and strategy.

Underwriting guidelines are more strict than on residential loans, and buyers who might qualify for a condo loan sometimes cannot qualify for an individual tenancy in common loan.

Or were you using that more for an example?

Your response really helped me understand the key aspects of short sales, especially regarding title issues, lender valuation, and inspections.I truly appreciate you taking the time to share your expertise!

You'll definitely need more time to get things processed.

I'm happy to discuss further with you if you have more questions. 

Or is it more than that and not something to be done without development experience?

We have helped a ton of clients with the process here in Chicago..just be sure to find a team (Agent, Lender, HUD Consultant, and General Contractor) that has done these renovation loans in the past!