`We are going for a very sleek modern look in the bathroom - I think a glass door shower will look terrific.

Also, sometimes existing structures are "Grandfathered in" meaning they don't comply with modern setback requirements etc, so sometimes it makes sense to keep just enough of the old house to keep grandfathered in and just rebuild on top of that.   

They could probably be painted without much issue but the kitchen would still not look modern, is a remodel worth it?

In order to find higher paying tenants, I would need to seriously invest and modernize the building to find a higher grossing business that would want to set up shop there. 

In most modern leases I am aware of, some variation of not allowing subleasing will exist.

Inner East Portland is sexy, hip, diverse, historic, modern, grungy and full of excitement right now.

@Jay Hinrichs  The area due north of downtown Indianapolis is Old Northside (12th Street - 16th Street), which the City of Indianapolis considers a "historic neighbhorhood", but it is far from a sleeper with old, Victorian houses easily going for $500k - $1 million (http://www.oldnorthside.org/).I believe the neighborhood you are referring to is Herron Morton (http://herron-morton.com/), which is also a "historic district" (16th Street - 21st Street) and has some really stunning/modern new builds & impressive Victorian renovations, which can be had in the $300k - $400k, but can easily go up to $500k - $600k.  

Certain waterfront and modern buildings are exempt. 

The house needs some work even though it has been reasonably maintained.Must have'sNew Septic SystemLeaky Basement repair.Repaint exteriorShould do'sComplete rewire from 100 amp service with tube main breakers to modern 200 amp service.Replace old 1950's windows that are cheap aluminum balanced or wood channels that have been pained shut, but at the front of the lot near the road in the front corner of the property.Some options (many more this this probably)1.

You have to analyze what kind of rehab you want to do and what kind of rent you want to charge (low end,middle end,high end).Will the building best be suited for a modern look and feel or a traditional one?