Can you give a cost breakdown?  

PLRs will rarely match your proposed transaction structure.

You would likely have to do a ground-up construction for a design you are proposing.

I am doing my best to accommodate and fix the insulation as well as see if there are programs in place to lower the cost. however i want to be firm with tenant as they are not compliant with paying rent because of the cost of the utilities.

If you think you will have it for less than 4 years I would say go with the HELOC because you have less origination costs.

Offering a maybe 10% discount will help grease the wheels and the cost is small.

. :) A zoning change can take up to 6 months, approval isn't guaranteed (despite Aldermanic support), and potentially cost a lot of money (architectural site / floor plans & dimensioned elevations, zoning attorney, holding costs, etc.) 

An LLC is not free.

If there aren't any massive physical problems with the property, it appears you can grow income and equity.You might be able to buy this with little cash out of pocket if the seller owns it free and clear and was willing to finance nearly all of it.  

Here's a fundamental explanation to get your juices flowing:Assume a house costs $200,000 and rents for $1,500.