Allow yourself to learn from the experience, and don't be afraid to modify your plan of action to suit you and your friends the best. 

Property is currently the following per MDC,PA Primary Zone 3161 UC CENTER - RESIDENTIAL MODIFIED (RM) 4 MAX HTPrimary Land Use 0802 MULTIFAMILY 2-9 UNITS : 2 LIVING UNITSThanks in advance, Respectfully,Andrew

Thorough Due DiligenceKeep in mind to modify your approach according to the state of the market, the accessibility of finance, and your total financial circumstances.

@Nicholas AiolaI know the $25k PAL offset rules which will be phased out if MAGI (modified adjusted gross income) exceeds $150k.

The plans Can be modified slightly to convert the primary room of a 4 bedroom unit, to a 3 bedroom with an attached ADU.

@April BirdsongAs mentioned, material participation of $25k allowable deduction phases out between a modified AGI of $100k to $150k.You might be able to deduct some of the upgrades if they were smaller chunks.. maybe?

Then you will have to think about the added cost to possibly modify the exterior of the house to accept the new windows.

You may still have to deal with a lender for acquisition and construction and then modify your loan assuming your dealing with a local bank. 

I was going to do an inspection before modifying the lease. 

There are plenty of programs out there that will allow you to create a state-specific lease with all of the required language for your state and will also let you modify it to add your own special terms, like your parking requirements, quiet hours, how trash and utilities will be handled, etc.