I can't imagine a city going after a landlord without cause.

If you 1031 into a 2-4 unit property and lock in a 30 year fixed rate loan at today's rates, you can be less concerned with higher interest rates in the future because when the term of the loan is through, you will own the property free and clear.However, going with a commercial loan with a 15 year term will open you up to interest rate risk.

I view this as situational debt rather than a systemic concern.

I'm always open to help or give advice concerning construction in an investment style atmosphere.

The bigger concern is that rents can be much lower with one beds.We get 500 for one beds, and 650 for 2 bedsGino

The house was sold in October 2017.Last month (March 2018), the new owner reached out to my agent and said that the workmanship of the remodel was crappy and caused the leak behind the walls, and created mold to grow.

According to the lender, my DTI, not LTV is what is causing the loan amount to be a bit under what I'm looking for. 

This is not some fairy tale test where the disabled one will magically turn into a prince and cause a climax in the story line with a happy ending.You need to get that kitchen done in time and on budget without any mishaps.

My concern with the place is in the master br there is about a foot long mold spot on the ceiling and it feels like the floor in the second br is unlevel. 

I'm assuming your concern is about space?