But after inspection, I realize this building needs a lot more budget to maximize the rents.

Unless you do something like this, you are just guessing and that could hurt you.Sounds like you kinda know the industry, but you need an expert to maximize the return on what sounds like a fantastic property....

Some people try to brute force hood properties into Airbnbs to maximize cash flow but you're doing a disservice to the guests and are asking for trouble from the local riff raff.

So… I need to hear how you creative minds would approach this situation to maximize my equity. 

We've honed our processes to maximize operational efficiency in our city.  

What can I do with this money to maximize my return of the cash-out?

I'm not sure if that maxim still applies to the 203k. 

Has anyone done this or would you recommend doing this to maximize cash flow on your first investment?

If not there- you do need a boots on the ground- either family/friends or rental management to be a contact for any leases if you do to rent out your property- you still could purchase a SFH with a studio set up to maximize rent and hope for some cash flow! 

It isn’t so much the size but how the design is laid out to maximize the space.