2) What are the primary red flags I should be keeping an eye out for?

@Courtney Hebert if you're interested in a 203k you might also look at the Fannie Mae Homestyle renovation loan, its similar but has some benefits over the 203k in that it has a little less red tape on the type of improvements you can make, and doesn't have an owner occupant requirement.

Monthly holding cost box stays red for me and will not load when I click the "Continue" button...

Select nearby recent sales of similar size lots, square feet of the home, number of bedrooms/baths, etc.

In pulling a permit to replace such a system it would raise a red flag for a city official to inspect the entire home when the job is to be inspected for approval and can open a can of worms for further work to be done for code purposes.

I had estimates up to $12,000 - the $12,000 estimate measured the square footage of every wall, the ceiling and the floor (I think they had enough work to do and were over-bidding the project). 

Natalie,There is no question that there are plenty of properties (markets/neighborhoods) where merely converting shared living space into an additional bedroom - without adding any additional square footage, could net you absolutely zero more dollars on the sales price.

Though I've heard that Fountain Square is making a comeback.  

Adding livable square footage may not return the square foot rate you expect.

Hi @Diana Pritchard,I don't estimate repairs off of square footage.