Some are basically renting out bed space and require tenants to sign an agreement to stay clean, and be tested upon request, with failing the test potentially leading to immediate eviction.

I basically do the same thing and specifically tell them not to worry about bedding.

One is a 2bed/2bath completely renovated and the other is a cinder block house 2 bed/1 bath that needs minimum updates.

Big tanks are like water beds if they bust.

A good rule of thumb is this:  Be careful and fully understand the risks of "getting in bed with the government". 

My Partners and I have been buying Brooklyn small multi's (2 to 4 Unit buildings) since 1998.We currently own 9 of these buildings in various neighborhoods including Clinton Hill, Bed-Stuy, Windsor Terrace and Ditmas Park.Total Assets would be somewhere between $15 and $20 Million in the portfolio.Every since we bought the first property, which was in Ditmas Park for $340k in 1998, everyone told me it was crazy.I continue to hear how crazy I am to continue to buy every one or two years since 1998.That $340k Property in Ditmas Park is worth $2 Million today.

The property in question has commercial space on the ground floor with two, 2 bed/1 bath units above.

I did not choose.I selected configurations similar to what they were renting—for example, 3-bed, 2-bath, yard space, etc.I focused on locations where they were currently living.I set rent prices within their budget.SummaryI became successful at real estate investing once I understood that what matters is the tenant segment who occupies the property.

He purchased a relatively inexpensive ($210k), 3 bed 3 bath townhome.

I can’t imagine an ADU would be very beneficial, and most dont have a basement to convert into more bed/baths.