The inherited tenants have lived there for over 17 years so at minimum I expect I will be replacing floors and painting everything.

Other than that we will just be putting in new flooring, paint, bathroom vanities, etc.

or flooring inside the house?

Imagine having to move out your tenants (who are angry and shell shocked because all of their personal belongings were destroyed), rip out your flooring and drywall, dry out for a week or two, and put everything back together - All while dealing with a remediation company who has 15 other jobs on the go at the same time as yours, and a GC who also has 15 other jobs on the go at the same time as yours, and dealing with your insurance adjuster (remember, the whole neighborhood got flooded, not just you).

Since cabinets, flooring, electrical, plumbing, etc. have to be upgraded anyways, is there a financial payoff for turning the units into 1 bedrooms - e.g. moving the kitchen wall into a bedroom, creating a design that looks and functions better?

I'm redoing a rental.We've replaced the subfloor and are going to put vinyl plank flooring. 

Scuffed marks on the wood flooring from continued use2.

@Jinhee HannThere is a little confusion on what you wrote in the first post.Cost segregation is used as a way to accelerate depreciable items of the home that you purchased.Without a cost segregation, allocation is normally done to Building and Land.A cost segregation attempts to find assets with a faster asset life(floating floors, land improvements, appliances, etc)These assets may be eligible for bonus depreciation and first year write off.Improvements made after the purchase don't apply to a cost segregation.Best of luck

New flooring, fresh paint colors, new plumbing and lighting fixtures, but preserved the original charm.

.- The buyers who absolutely have to have a floor plan of this particular type, in this area, etc.