It doesn’t seem like there is any room for cashflow and maybe it is just a bad deal. 

I have heard very bad feedback from my property management companies.

@Ryan Johnston  at this point it's probably not a bad idea to call your agent and go walk through the active comps looking at fit, finish, styles, etc of the rehab. 

Too many loans go bad the VP's at the bank said multiple people can get fired at the banks.

Otherwise your choices are limited, which is why more wholesalers shy away from REO's.

Honestly, it's too bad that the operating part of your dad's business does not carry with it some residual value of some sort with regards to that commanding a sale price.My hunch would be that this would be far too risky to embark on as a first go of things.Especially, from what you're mentioning this may have a large impact on the quality of your dad's retirement.If you have the funds and can structure something, the place to start would be to engage with an A/E firm to get a cost estimate generated for a concept building like you're mentioning. 

Whether good or bad.

I've had a very interesting proposition for a new on the market, higher end, flip property.....A buyer, due to personal issues, has bad credit - but cash in hand.

Personally I'm not sure that I would ever do it on my own residence, but it doesn't seem like a bad solution for rental properties where every penny is being pinched as @Mark Fries suggested. 

It wouldn't take much for this entire situation to go bad and end up costing you a lot.If the two units rent for $2,000 a month then a property manager will cost around $2,400 a year.