To piggy back on what Mike said, if this is an illegal 4 plex, section 8 will not cover a unit that is not registered with the tax assessor, so that will make renting the unit much tougher.  

I do foresee a problem with these tenants giving me a hard time with the changes that I am looking to make (rent increase, payment via check, late fees, and lease agreement). 

Bigger Pockets Money podcast also has some insightful episodes about building a solid financial foundation in order to eventually make real estate (or other) investments.

The unit is 600 sq. feet and I know we need an exterior unit of 20,000 BTUs and two indoor units.

This is a 3 bed, 3 bath, 2200 square feet house, no basement, two levels.The rehab includes 3 baths, kitchen, flooring and indoor and outdoor painting, landscaping, all appliances.

getting to even talk to a decision-maker can be difficult.You might wait until the seller gets more motivating with a pre-foreclosure letter and you might be able to make that go away by your offer that includes bringing them current at a highly discounted price. 

That’s really how we got into this space initially by retrofitting existing warehouse spaces for indoor cultivators in Oakland.

It seems the owner is not the sole decision maker, I have no report with the daughter, and they don't even realize that they owe as much as they do. 

Sounds like a money maker. 

Make sure you follow the statute on notice service - 3 good faith attempts to serve in hand then if unsuccessful leave in door and mail a copy.