This can cause some installation issues when running the wall cabinets to the ceiling.

I would remove the wall paper and wall paneling and leave cabinets as is.  

I say this in a friendly way, Andrey - maybe its good that you've hit this wall.

@Jon Klaus So far, the only money spent was on keeping my lawyer on retainer to help me deal with the water districts easement request and to avoid violating the current easement we have with the city.

Yes, if all goes according to plan, you will make more money taking out a loan and retaining 100 equity stake.

However, busted walls, windows and missing plumbing reflects big discounts...:)

Or does it need to be gutted and have all of the walls replaced?

One corner of the house hassettled/sunk and there are bulging walls in the basement.Thanks,Chris Rumsey

From walls caving in to rotten support beams to dirt floors/walls.  

Your abilities hinge on a foundation of knowledge and I mean real estate knowledge and finance knowledge, not guru tricks.Newbies keep wanting to go elephant hunting with a slingshot or BB gun, by that I mean they get their hunting equipment from gurus and investor forums full of off the wall stuff.