11k is plenty of space to build a duplex.

What is the interest rate floor?

One property has a commerical space in the front that historically has been used as a take-out food stand, which could be profitable. 

It’s just part of investing in that area.Keep an eye out on newly finished basements - I’ve seen a few recently that looked like they were more about hiding problems than about adding useable space to the home.

@Mckinley Baggett - You have options within the commercial lending space. 

New plaster,  new kitchen & bathroom, all new flooring.

@Igor Kalabukhov We plan to rent out the 2nd and 3rd floors after rehabbing those units and keeping the first floor vacant after renovation.

And yes, there must be a 2-year space between these transactions, even for the partial exclusion.The only way to avoid paying capital gain taxes is a 1031 exchange.

I installed hard wood flooring in two of the main living spaces in my current house and remodeled the bathroom.

Such conversion need not comply with the requirements of the following specific provisions of this chapter:(a) Section 13-196-660 (height limits); however, in frame buildings, four or more levels of living space shall be prohibited and in buildings of ordinary construction, with or without attic living space, five or more levels shall be prohibited; (b) Section 13-196-050; however, all dwelling units must comply with the exit provisions of Chapter 13-160 except basement dwelling units may have a second exit through a room containing a heating plant; (c) Section 13-196-670 (stairwell enclosures); (d) Section 13-196-680 (corridor enclosures); (e) Section 13-196-690 (dwelling separations); (f) Section 13-196-710 (basement ceiling construction); however, if the basement contains a dwelling unit the entire basement ceiling construction is to be wood lath and plaster of half hour construction; (h) Section 13-196-720 (heating plants); however, basement apartments are to be separated from heating plants with partitions of one hour construction.