There ARE so many right answers to your question.I feel that you can find profitable flips in any almost any area with proper marketing, due diligence, and proper project management.  

Business wise the smart move is to get a permit and build a proper separate unit in the basement.

If the business entity taking out the loan is properly set up (no humans anywhere in the ownership chain), the acquiring entity's credit alone may be enough to put the deal together if the entity has a strong enough credit profile and financial statement, and sufficient cash is available to balance the lender's maximum LTV against the purchase price.Just a starting point ...

Your questions have their basis in C-Corp taxation, which functions the exact opposite of an S-Corp in almost every significant way.The main difference is that a C-Corp pays taxes on its profits, whether they are distributed or not.  

It looks a little more polished, but I know Quest is functional which is what is important.

It seems to be a function of type of neighborhood (A,B,C or D), CapEx schedule, macro trends, and other things I do not yet know! 

If structured properly you can earn 50-60k pretty well tax free using a number of different strategies.You should check out Mr.

Keep in mind that the auction process is just part of the legal requirements for the lender's collection activity of last resort - and that the auction process is somewhat designed so that the lender can "solve" some of the issues by following proper procedures (for example, IRS liens can be left with just a redemption period if proper notice is given to the USA that a foreclosure will happen and extinguish the IRS lien).

Is there a dining room that could be turned into a bedroom without disrupting the functionality of the house?  

Make sure you are protected with a recorded mortgage, that the property the mortgage is recorded on is worth more than you loaned, and that the property is properly insured.