That can take a lot of pressure off you.  

Question, how do you gauge what improvements would increase the assessed value by 40%.

Here are both options I plan on offering my potential investor: 1. take out a 3 year $120,000 loan (my plan is to sell within 2 years, just asking for 3 years so I wont be in a rush or pressured when time to sell) and give $400- $500 interest only payments every month for the entire loan and a balloon payment of the $120,000 after closing. so assuming he/she accepts $500 a month for 24 months, that will be $12,000 in interest, a 10% return on the investment.2.

The market is tough to gauge because there are nearly no rentals available (there is good demand for the area) I'm guessing I could raise rent around $50-75 and still find or retain a tenant timely.

Sure a rate of return between here and there is important but that is the tool to gauge options not the goal.

If I 1031 it, I would be under pressure to replace it with 2 or 3 houses in Florida.

(These "little things" will make an older house look and feel new easily and with a very small investment of your capital)Landscaping and exterior paint/pressure washing.

That way you will be able use an internal heuristic gauge that you've developed through awareness and education to get to a point where you can make solid judgement calls. 

A good lawyer is likely needed here, especially if you want to pressure him into selling or paying for his portion of the improvements, as I believe a condo can vote on improvements and then require each unit owner to pay their assessed portion.  

The plumbing checks out for leaks and pressure per a plumber testing it.