I am a union electrician and have tons of experience fixing up homes in all aspects which is why I am most interested in buy/hold rentals and the BRRRR strategy. 

Would you rehab the two 1/1 and fix up the garage, or would you finish out the basement and add 2/1 down there for one of the units? 

My advice is fix it up as much as you can with as little money as you can (clean, repair, do yard work, make lipstick improvements, paint but don't paint yourself into another corner haha) and get out of this deal as soon as possible.

Educate yourself on the strategy you want to pursue - fix & flip as you said, and then take action.Best of luck!

Unless you commit to a major gut renovation, it's not going to look good, so figure out your own quick-fix options from there.

Fix and Flips are a lot of work for a few bucks and it creates short-term capital gains. 

Once again, that's a relatively cheap fix, so I wouldn't even bother with trying to put it on the tenant. 

Assuming you have to refinance you looking at fees, will you eventually get 30 year fixed?

that actually kills a lot of ROI percentage when I’m doing the numbers for a fix and flip.

Had she stayed as a tenant you could have had some creative solutions like section 8 help or an active aging program but the outcome is fixed at this point