I have done some research and I have some basic understandings and questions1) Looks like I need to know a "conversion to rental date"  Is this just any date I want to pick after the 2nd house closes? 

Without a goal you are basically pulling tools out of the toolbox without a gameplan. 

It's a gamble in some ways, as I don't know if I'd be able to build what I want due to zoning.prop #2- crappy neighborhood. 1/4 acre, BUT-has a single family house, small garage, plus warehouse space that's ~2500 sq ft. zoned C. cheap. house is also a total rehab. closer to "move in ready", but honestly, the crime in the neighborhood is to the level that I don't think I'd bring my kid there now.

I'm not a CPA so you should consult with yours, but these are the basics for your situation.Capital gains exemption on personal residence - This is the 2 years out of 5 rule, if you've lived in a home as your primary residence for 2 out of the last 5 years you get a capital gains exemption of $500k since you're married (it'd be $250k if you were single) Meaning the home can appreciate $500k or less and you'll pay no capital gains as long as you meet this 2 out of 5 requirement.

(not counting the renovation) I think it's tough to find a deal like this in Chicago on the North Side, where you can sleep peacefully at night and not worry about someone breaking in, or a drunk and disorderly, including being located in a  highly rated school district...I understand appreciation, and gambling on neighborhood gentrification isn't a primary concern of mine, this is a risk-free, safe return play.

Basically I want to be 100% clear and free of this property and not have to deal with it ever again.  

Many won't even include basics like CapEx and maintenance saying stuff like - our properties are fully rehabbed even though appliances/roofs/HVAC don't last forever... in the projections and they like to cherry pick rent projections that are the highest possible in the area.A common scam is filling a rental with unqualified tenants who default and need to be evicted.

@Colin Courtney I'd start with the basics - pick a niche you want to focus on. 

JWB is the local heavy hitter basically buying everything in sight....

So some basic bullet points about me ... 34 years old , sole provider for my family which consist of my wife and out son ( 17 months old ). .