Someone falls down the stairs, claims they can never work again, insurance company says handrails were 2 inches short of code and they are not paying out.  

We have seen property prices inch up 5-8% every year, and even now with CV they still go up

This is a small 3/1 and every square inch is precious.  

Brush up on building code requirements: in basements you're looking for egress windows that are 5.7 sq feet or more openable (3ft by 3ft casement style windows work best), and ceiling heights 6ft 8 inches or greater (as little as 6 ft 4 inches is ok under ductwork and beams though)3.

You'll enjoy it over here, less tall poppy cutting than the NZ forums which we like ;-)Sing out if you need any help in DunnersK

And yet the neighborhood around it is going up, so we can capitalize on either a complete remodel or making it a tear down in the future.Its not so much about comparing what we like to do vs a long term buy and hold, but rather we have a long term buy and hold with multiple outs.So for instance (a real example), we bought a 3 bedroom with a weird configuration, some odd things like 7 inches between the lower and upper cabinets in a transitional neighborhood right near downtown.Purchase price was $180K, 2,700Sqft, the house most recently had rented for 1,300/M.......Although it was configured as a SFH, the property is zoned MF.We put in about 30K to turn a loft into a bedroom, added a couple of closets, closed up a door, painted, put in some flooring,  redid the privacy fence,  etc etc. 

The lot is approximately 8 inches short of the minimum lot width requirements.

Brush up on building code requirements: in basements you're looking for egress windows that are 5.7 sq feet or more openable (3ft by 3ft casement style windows work best), and ceiling heights 6ft 8 inches or greater (as little as 6 ft 4 inches is ok under ductwork and beams though)2.

The challenges of the space are there’s 3 storiesthe 2 bedrooms and hallway on the 3rd story have tall (17ish ft) ceilings. they're doing ceilings and closets not just walls

If you play it right, and buy it right, you should be able to 1031 your proceeds from one deal to another, thus inching closer to your final goal.