Do you have a minimum of square footage, beds, baths?

That starts to build up a LOT of red tape. 

Big red flags are a whopping bill to an apartment complex, or to the power company. 

As long as the changes are up to code the appraiser and/or home inspector for the back-end sale should not have an issue with the added square footage.  

Sounds to me like you may be trying to put a square peg in a smaller round hole trying to adapt leads to a strategy, that is bass ackwards, you look at the property, the circumstances, the goals of the owner and then select the best strategy to get the owner's problem solved.

There wasn't much red tape involved.

The lack of credit isn't too much of a red flag to me.

My question is do I need to have the homeowner insurance squared away before I start letting electricians and plumbers into the property?

Find out if the two LLC's have any connections to each other, which would be a big red flag.

That really shouldn't raise any red flags.