Just hoping it will all work out.

In either case, you have to pay up to 25% on the 1250 depreciation recapture for any rental property and CG on the portion of the proceeds proportionate to the amount of time it was used as an investment, sooooo...things would be complicated and the savings on the second unit may not work out being that great.

In the real estate investment field long enough, we all have losing investments; those that don’t work out as planned, and those that approach the “disaster” state.  

Hopefully it doesn't lead to a lawsuit as those rarely work out for anyone.

Future tenants would likely appreciate the extra storage, and it could make your duplex more attractive in the long run without the hefty upfront investment that a full conversion would require.Another idea is to repurpose the shed into a functional office space or a private workout area.

Although your reviews won't convey, the buyer can have some peace of mind that with future revenue that the first couple of months mortgage are covered while they make adjustments, build up some reviews and work out any nuances they need to.

How did it work out for you?

They gave you two options that both work out great for them and are not ideal for you because they are a bank.

What can you rent the property for as  long term rental in the event that AirBnb doesn't work out? 

I hope things work out well for you.