Request the tenants leave, flip to 3 bedroom, and rent to new tenants at $986If I convert from  2 BR to a 3 BR, I've calculated a payback period of 2.3 years... here's the high-level of how I came to that number:Annual Opportunity Cost:3 BR vs 2 BR Rent = $2,790My Time (expect less needy tenants) = $1,183TOTAL OPPT COST= $3,973 <-- This is a favorable numberCost to get unit ready as 3 BRTotal to flip = $7,551 (includes paint, new floors, converting basement to bedroom, etc)  2 Months lost rent = $1,510 TOTAL UPFRONT COSTS $9,061 <-- This is an unfavorable numberPayback Period =  $9,061 / $3,973 = 2.3 years (Note if I'm conservative in my nubers, this becomes 3 years)Couple more things to note, they're set up on re-occurring payments and have not missed a payment.

There's a very small sample size for comparable apartments on zillow/craigslist/realtor.com and I was wondering if anyone has any strategies they've used to calculate accurate/conservative rent prices for specific neighborhoods?

@Whitney R. did you run your numbers through the calculator? 

I few of the renovation expenses on a 203K are used to calculate in the loan amount but that really doesn’t change the cash out of pocket."

If I compare the rental income to the PITI payment it's actually just positive, but with other expenses (water/sewer/trash and capex, calculated by using 8% of rents), it turns into ~$500 month coming out of my pocket.

The BP calculator is confusing and doesn't actually give you the real numbers.

Some of the limitations with just calculating the cash flow is that you're not taking into account all of the sources of dollars coming in. 

@Tony C. remember the advice: "Don't bet long term with short term money." 

These programs are much more lenient and allow Alternative income streams to qualify such as: Liquid Asset calculations for incomeBusiness Bank DepositsPersonal Bank Deposits Expected Income New Employment income1099 IncomeCommissions & BonusesAccount ReceivablesNote Receivables Contracts for future incomeNew Rental IncomeExpected Rental Income from property planning to rentConsiderably different calculations on Tax returns 

I would recommend using the Rental Property Calculator that BP offers.