Lets review some major points as they are pertinent to my advice.1.  

She is transforming an existing structure into a creative studio space, seems cool, and I want her to succeed. 

I am guessing that the vast majority of homes 10+ years old had some sort of water damage at some point, most had probably several.My own home is only a few years old and we had the washer spring a leak and a few years later the RO system in the kitchen started leaking into the cabinet.Seller disclosures are pretty useless in my opinion.

@Scott Goulet if that's the case and there is no significant difference in occupancy, then my gut tells me that it is not a major factor that guests consider and are willing to pay a premium for.

The deferral is all on major capital expenditures, roofs, HVAC, Water heaters. 

Quote from @Bob Dole: All,Apologies for the newb question, but I just heard about cost segregation and have been reading up about it online.My understanding is this (and please correct me where I'm wrong):Pros: -accelerate depreciation, front load (vs. just a straight line over 39 years) -save money on taxes because of the depreciationCons: -if I sell the property, the recapture will be larger -not recommended if you flip propertiesSo hypothetical situation:-Majority of our income is W2 based, let's say it's $500k-Net income from commercial rental is $100k-Income from dividends and interests is $100k-Both of us are full time W2, so non-prof real estate (but this can change  -- please see below)So we're hypothetically grossing $700k a year. 

But enough to make to do all the cosmetics along with a few major items like HVAC, appliances, etc.

If you are still a majority or controlling partner you will get no pushback. 

It was a good learning experience, but it made me realize that staying away from major rehabs (for now) might be the best move until I have a more reliable system in place.That said, having family in the area like your sister and brother-in-law is a huge advantage!

@Harrison Jones  One of the major flaws in your perspective is that it is focused on cheap rent (driving rents down) not affordable housing.