I would say as an investor, cut and run and look to make your 2% rule in PA....

If we were purchase and say a year down the road wanted to move out and get more tenants into the home would we have to refinance to an investment loan?

The building is well located (right next to the state capitol complex) but isn't a "nice" area like the one family, I'd say a B neighborhood. 

As a general statement, I'd say, a tenant claiming they were hurt on the property (General Liability claim) is the second most common claim.For CO, FL, TX, and OK, Wind and Hail claims are just as common as a fire claim.

Although, I will say, a solid and trustworthy hard money / private lender will be invaluable when you're wanting to scale up your business. 

Now it is pretty easy to push them towards your title company of choice by offering say a $500 credit or so.

The other major consideration here is how the place is assessed and the impact on your upcoming future.On the sell side, a savvy buyer would have room to beat you up on the price because you didn't get the new bedrooms permitted (as in, they aren't legal bedrooms)On the rent side, the main risk in my mind is that when you rent it and there's bedrooms there if something really bad happened, (say a fire or something) then the insurance company and the AHJ all have a clear path to point to you as the owner, and potentially get out of the way of a major claim.Now this said, I guarantee you that most investors here view these decisions as BUSINESS decisions on these forums, however one reason you don't see a lot of people sharing their specific personal experiences or crowd sourcing these questions is that there's risk involved in sharing awareness of running something 'around' the system.

Thus far I have read through a few threads posted by beginners (to get an idea of what I should say) as well as some general advice threads.

Lets say a 2br/1ba for 450k (prices on the market from 480k), and then find someone who needs to downgrade from 4/1 or 3/1 (prices from 670k).

You illustrated my point pretty well although i don't know enough of the companies to say that most are churn and burn, but I would say a vast majority are interested only in making money as fast as possible and turning as many transactions as possible.I am trying to pin down what investors are looking for when they turn to a Turn-Key company in the first place.