Eliminates all the retail buyers who can't get financing for them unless they use FHA 203k loans and have some measure of experience in construction. 

I am assuming we can eliminate one staircase (egress?)

Of course I can view the cams on my phone too, but rarely utilize that feature.Using the cameras and electronic access control has allowed me to eliminate the 4 hour a day security guard the previous owner utilized, a savings of about $20k/year.  

(Better to do a heat pump and eliminate baseboard heat, a little more i think), miscellaeneous materials=1000.

By the way, I gave OP ton of credit for keeping a clear head and see the location for what it really is...Lots of home owners could only see good with their locations...With newer business all moving up north, SJ downtown lost its window of opportunity, building tons of new property does not help...Eliminating the homeless problem would..In my view, Jury is already out on SJ downtown.... jury is not yet out on East Palo Alto... but again that is a big gamble that I would use my own money on..

Eliminating the rent or house payment by buying a multifamily will save you thousands a year if you can find a duplex or something bigger.

If so, when you are able to eliminate that you returns should increase significantly making option C even more desirable in my mind.

There is NO way to 100% eliminate the risk of a low appraisal it is a one of the risks of selling real estate.

A 45k purchase only satisfies 50% and would only eliminate 50% of your gain.That assumes the related party rules don't prohibit the transaction.

Painting a 1000 sq ft house is also going to be similar cost.By pricing above the median, you eliminate a variety of liabilities.Now for the caveat.