Illegal basement units seem to be very common in this area.

You're making a fairly common mistake of designing your castle when you haven't even learned how to build a chicken coop.

I have not reviewed BAM's fees but it's likely based on their representation of UNDER 10% "skin in the game" that most of their "investment" is taken from fees deducted from the money gamblers place with them and counted as equity in the deal; this is a common practice in the syndication industry. 

Funny how things seem like common sense, only after they happened, isnt it?

I highlighted two common exceptions in my earlier post, but doesn't sound like either scenario applies to your case. 

This is Occupancy Fraud, a very common type of mortgage fraud. 

When converting common living areas into additional bedrooms, many DSCR lenders might view the property as non-conforming, which could pose challenges.

There is almost no understanding CPM- several multimillion dollar coliving start-ups have FAILED b/c they saw the demand for coliving w/out seeing the need for a respective form of property management (see HubHaus, Common, Starling, etc). 

You are suffering from a common misunderstanding of the law.

There is no given answer here, because the whole property needs to be relatively consistent.Kitchens and baths are the common answer, but if they are passable and you choose to invest in them anyways at the expense of peeling paint (or off putting exterior color) and overgrown landscaping, the appraiser and tenant will be walking up with a bad taste in their mouth, thereby not valuing the interior work you have done.But think about the general flow of someone looking to rent: more bedrooms will typically dictate more rent.