Then, other tenant threatened to move out unless a rent being reduced to $325.

Shari, if your aim is to reduce liability, you may want to consider putting your properties in an LLC or multiple LLC's.

Its the originating lender who may have an overlay which precludes that type of structure or reduces the CLTV to 90% or less depending on occupancy and borrower qualification.

Here are my estimated numbers:$5,000 capital improvement$50/mth or $600/year in additional cashflow$50/mth or $600/year in reduced gas billCash-on-cash return of 24% ($1200/$5000) Appreciation based on 8% cap rate is an additional $15kMy question is this: Why is no one making this upgrade/conversion?

Your local knowledge and resources should provide an opportunity to disposition said asset that reduces the expenses and time to recover or collect.Understand also, that banks are not the only holders of loans.

They can't take bankruptcy on you, their debts have been reduced, they may have debts on an easier payment schedule and the reason for the BK is not considered.

How will buying it at tax auction reduce the purchase price.  

Weather and seasonality also reduce the number

We are looking to pull equity out to reduce down to a $100 Cash flow only and reapply the equity to between 1 to 3 80/20 purchases. 

Lastly, if any damage was compounded over the months while just sitting there unrepaired, you can expect the carrier/adjuster to likely reduce the payout.