The key additional question is moving forward would they insure the property if the answer is no at purchase 

I would like to buy a single family and rent out the additional rooms. 

No additional cost/premium to tenant.

Additionally (I may be off-base here) but I think another benefit to a fix & flip to me would be the personal experience of rehabbing a home. 

@Shawn Kostoff, I’m reaching out to the city for any additional fees or implications but what else might you have in mind?

One often overlooked but important item as mentioned is finding out about additional junior liens Before making an offer.

Any unused passive loss gets carried forward.Let me know if you have any additional questions. 

In addition I suspect many of those homes that are huge negative cash flow are being sold to owner occ.. not for rental purposes. ???

What i want to do is either put a bedroom in the attic for one of the units or put an addition on the home for a bedroom.

The point of the law is to improve certain areas of the country by bringing in new structures and upgrades.I will be doing more research and talking to additional real estate specialists at our firm for more guidance.