We want to build something landlords would actually use and find valuable.

This is actually the most risky way to get into multifamily that I now know and see from experience. 

Can anyone offer some advice on private money lending?

If so, for them to stay they would have to cough up that extra money ...

The money isn’t her nest egg.

Lessons learned: 1) Do a more thorough tour of house before purchasing 2) Have more money saved Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

If expenses are more then you lost money.

That should smell like money. 

The midwest is a prime example of being overlooked but the pricing actually is pretty reasonable these days (at least compared to a couple of years ago).

As a prudent buyer, you should strive to pay a price that makes given the current actual income and expenses.