Keep your personal safety and that of your tenants and neighbors in mind. 

Ultimately I am worried about protecting our business's reputation, the safety of our tenants, and having a viable rental. 

Now a landlord (and architect), I wouldn't build out the space without the second stair since it really is a safety issue/liability (especially in case of a fire) if anything were to happen.Full excerpt of building code below:According to the Chicago building code on egress requirements, the third story above grade plane within a dwelling unit [which in this case is the duplex-up unit], all the following conditions must be met:1.) the building is equipped throughout with an automatic sprinkler system2.) the floor area of the story does not exceed 1600 sq ft3.) the dwelling unit has an exit that discharges directly to the exterior at the level of exit discharge.Your third story attic space is unlikely to exceed 1600 sq ft, but you'll probably find the sprinkler system to be cost-prohibitive.

I am risk averse and if I were to purchase, I would tear down to the studs and do a full rehab {this would include getting rid of asbestos shingles and insulation).1) I have done a ton of research and it appears as if getting rid of asbestos is very DIY able assuming you spend money on the safety equipment and use it properly. 

Most buyer's are not competent enough to understand a true hazard when they see one. 

@Ben Zimmerman and @Theresa Harris both made great points above: cash flow can only be determined after calculating and deducting ALL expenses, not just the mortgage (including insurance (hazard & flood), taxes, vacancy estimates, maintenance/repairs, and more.

Dealing with insurance and repairs is secondary to the wellbeing of your tenants and neighbors.Once you've confirmed everyone's safety, it's important to document everything thoroughly.

Safety comes in numbers.

It's been a great market for me.Things to consider when choosing a market; population growth (you don't want a stagnate or declining population), crime/safety (high crime usually means more unqualified tenants and will diminish property value), state property taxes, tenant/landlord laws. 

@Kristine Ann  I am going to hazard a guess that the boarding house exception would be for a licensed boarding house.