They will be a 2/3 bed.

If you choose to purchase from a turnkey provider or build your own team, don't be swayed into cheaper areas.  

If you choose to move forward, I recommend having a backup plan in case Hawaii outright bans STR.

In the event my landlord is interested in selling, I was wondering if I could add value in the short term by, say, converting part of the garage and/or covered porch into a bathroom and maybe a bedroom (currently 3 bed 1 bath).

Or find a property that is under-utilized or has below market rents.Otherwise, you could also do the OPPOSITE of the great advice from @Jonathan Greene and buy a property with multi-bed units or live in the larger unit and rent out the smaller unit - while getting a roommate(s).

Get good beds, pillows, sheets and don't simp.  

But I could easily make this a 3 bed, 2 bath within the existing sq ft. 

If you don't have a crazy house like a potato, a tremendous view or historical area, then choosing a pic is harder.I like the idea of the game room if that is your best feature.

Custom lighting we like to install reading lights in primary on the bed wall people dig those wire for it and let them pick the lights..

I give them a deadline to respond, very clear terms of how we will move forward with the option they choose, and I make it clear this is my final offer.