While these items don't necessarily add value to a home, they were needed to ensure a safe & sound property for future guests.

Conventional - needed an escalator clause to ensure I got the deal.

If money allows, I would update the entire system at once to save money, ensure functionality, maximize efficiency, etc.

The reason for the prepayment penalty is to keep the fees and rates down and to ensure the end investor is getting a decent return for their money. 

The engineer comes into to play to ensure your design can be structurally built, make sure it falls within code, etc.

Further, 30 days or more means tenant “rights” , so a written lease is required to ensure landlords have some rights.  

The biggest thing is you'll want to ensure you have enough time for a commercial appraisal - these are much more extensive than 1-4 unit properties and cost 3-4x as much usually.

Get your personal finances in order to ensure you're investing from a position of strength. 

Why don't you find an equity partner and come up with all the cash up front so that you have ample reserves to ensure that if you hit a snag that you are able to keep the project going?

I would highly recommend fixing the safety issues and temporarily quick fixing the bathroom to ensure there is no water leaking anywhere then telling her that the apartment is what it is, but rent is going up to $900 starting next month.