@Doug JohnsonI would never do such an arrangement I would charge a tenant if they left early .that is punishable I would certainly not allow their personal situation or family member issues dictate our agreement that was made .

I don't want to punish anyone.

Adus take a special builder that is a sucker for punishment by the city and the tight confines of the urban environment.  

Don't just do it to punish them. 

A landlord found guilty of refusing to rent based on source of income would be guilty of a first-degree misdemeanor, punishable by up to 180 days in jail and a $1,000 fine. 

A violation is punishable by up to 5 years in prison and $250k in fines. 

None, yet we are legally compelled by threat of significant punishment by the state to provide ongoing services to nonpaying tenants while we burn our life savings paying for property taxes, mortgage, maintenance, insurance, etc etc.  

If your area doesn't punish converted garages but rather extends the value of the original sqaure footage of the home directly to the converted garage space, that can be a great play. 

I feel like I'm being "punished" for negotiating this deal down to such a great price with the seller because now it seems like the rehab is exorbitantly higher than the purchase and turning lenders away (even one's I've worked with before on smaller projects). 

Might be - but TREC does not discriminate - they punish!!