Just mitigating my risk as I'm already in the hole.

Check first with your local building department.High liability risk.

Is it higher risk and is there any reason I wouldn't want to do this?  

we have been selling the assets and moving to notes as we go into our retirement years.. much less risk / if done right.. and no where near the drama of having your PM call you or your tenant.. let others do all the heavy lifting there is a reason that banks are so well off these days.. be the bank .let others do the hard work  :)

The reason why American business (this includes real estate businesses) have returned, on average, higher returns is because of the risk involved.

Any risks you can think of? 

Since it comes with a higher risk, it costs more than regular mortgages. 

The trouble is, is I don’t think I’ll be able to make enough from renting the condo out to justify the risk, and I’ve been told I’ll be taxed more heavily on capital gains if I ended up selling the home because I haven’t owned it for 2 years now.

But the risk/reward is also greater.

So this being said, should i take the risk to upgrade the flooring and likely have to replace again when she moves out due to animal scratches and tear up?