You sometimes go into the blind off of visual inspection alone because it's a good enough deal to absorb those types of costs. 

Constructing an IRR timeline on both options using the timeframe you decide on will help you visualize the better yielding investment.

@Craig LesslerYou should work with your tax pro to determine the proper treatment. 

Understand what other development requirements are for the residential units, for example, each unit may require an advanced treatment septic system (if not connected to sewer already.

Home buyers are very easily visually influenced.

If it is a normal 70/30 leveraged property, you may end up subject to tax on 70% of your returns anyways - so cost benefit, is that 30% tax free portion worth the high tax rates paid and additional filing fees to get tax free treatment on the 30%?

Assuming this is proper in your situation, with treatment of a tax partnership, reporting would be as such with a Form 1065 filed, claiming all rental income and expenses, and then issuance of a K-1. 

Some require you to visually read them while others have data output that could be sent somewhere. 

This analysis is demonstrated in our chart, providing a clear visual of how even minor fluctuations in cap rates can impact your investment outcome dramatically.

-Has no crawlspace (common for older properties) so we couldn't see the foundation-Drywood termite/wood decaying fungi damage seen on all the windows/doors/parts of the beam on the exterior, parts of roof decking and rafters in the attic-Old leaks/moisture damage seen in the ceilings and attic-Parts of the roof has patch work-Roof doesn't have any permits on record (don't know how old it is)Seller's offer to me:-Fumigation treatment for drywood termites (tenting the house)-Replace and repair all damage wood throughout the house-Replace the entire roof with a new permit-Replace one window in every room (not all)-Pay for a structural engineer to inspect the foundation-Offer to get quotes for repairs and have a 15-20K budget to make all repairs, house is 500K.