The actual margins are largely going to depend on the level of finish that your client intends to complete relative to comps - no need to put luxury finish in an area where the attention to detail may not be as well-appreciated and vice versa. 

The first level we are in the process of finishing and opening up a electric bike and kayak rental business out of, it is also 1850 sq ft on that level.

I'm the son of a retired CPA but not one myself, so my understanding of tax codes is only at a moderate theoretical level of why they are the way they are and how they work on a big scale, not the finite details to give true tax advice. 

Split level 1800 sf and need to refinish all the upstairs and tape / mud / finish the lower level.

I think the markets you're looking at will continue to see rent growth but one would need to look deeper into supply delivery of new units vs. deman (job growth) plus rent prices relative to AMI (area median income).

In the end, it's up to you and your comfort level.

Manufactured/modular homes have to be part of the solution - the lack of affordable housing in this country is at epidemic levels.  

That needs to be started at a local level.

Generally you will have had some level of conversation about the rent expectations leading up to this point, but owners tend to cost themselves more by shooting for rent over market (both in vacancy and less qualified tenants).2.

Nobody at the grocery store apologizes when meat prices go up 60% in three years so why would you apologize for raising the rent to market levels?