There is more red tape than one can think of with development, so if you don't know what you're doing, you can get burned really bad and really quickly.

Appraisers will red flag the house if there are structure changes to it because they are engineered and designed as a functioning unit.

Red flags all around...You've lucked out big time finding an investor willing to use their own money and split profit with you 50/50. 

Our first red flag since clearly it's open on the calendar.

The potential tenant does have a nice credit score ~770If the above situations are real, would it be a red flag for this tenant? 

I wouldn't allow someone local (say, from Knoxville or Chattanooga) to book for a single night, I consider that a red flag, and as much as possible don't allow people under the age of 25 to book, especially for a single night. 

You can also do what is called a Junior ADU with less red tape and requirements.

The red flags were flying all over the place, and they still are unfortunately.

I can find lots of opportunities for $100k houses in Florida, New Mexico, Texas and other southern red states with low regulations and lots of sun and heat. 

This refinance will get me out of the red.