Community is an integral part of society and house hacking encourages community because in some way or another its a sort of shared space.

The money mostly went into new flooring, installing an in-unit washer and dryer, tuckpointing the brick I exposed, tearing down a wall between the living room and kitchen, and updating the kitchen. 

I can easily fit a 500 sq ft building in the space.

In this specific case the unit is not built in such a way that I could sub-divide it into separate spaces (there are also zoning restrictions for density, etc.).

New floors, plumbing, etc...  

It is a 3360 sq ft (living space) building.

Hello,I'm thinking about buying a property listed as 2 bedroom, but theres a ton of basement space and I want to convert it to a 4 bedroom.

To keep it cleanest, I would think your sibling should pay market rent for the separate business space and they get their share of the profits from the building as a whole per your agreement. 

I've already replaced the flooring and toilet in the upstairs bathroom.

so this means the appraisal for the refinance part of the brrrr may come in too low if i move forward with this plan.of course on the other hand the tiny bedroom is wasted space that nobody will occupy. prospective tenants who need 3 bedrooms will not apply and my time showing this unit to them will be a waste. i do plan to hold this house for at least 10 years. so i am leaning toward doing this in an effort to make it easier to rent and keep tenants.