Let everyone know your intention or what your goals are and make sure they understand.Track all of your responsible for in a report style that you can review regularly and possibly reduce expenses and increase the income.  

Moving into something like this will most likely reduce your rent to 0$ or be a positive cash flow.

I do feel like we have some valid reasons such as reducing our housing expenses in order to pay off other debts, and downsizing because we had family members living with us previously that no longer do.

Reduce scope/size of the project, in particular as it relates to framing and other aspects of the build that rely on lumber.2.

Are you looking to buy down the rate, or reduce your balance to remove mortgage insurance? 

I'm not familiar with all the crazy NY laws, but it's generally understood that the Landlord cannot charge rent on a unit that is uninhabitable.Talk to the Landlord and tell him you expect your rent to be reduced for the days you are unable to occupy.

The tenant has been basically past due since Dec due to employment hours being reduced (that's their story).

However, reducing the price...and then forcing you to have a higher downpayment...which would in turn lower your loan amount further...doesn't make a lot of sense to me. 

You want to reduce the frustrations as much as possible.

I'm cool with the tax hit for now given the reduce tax rates this year.