This is a Bigger Pockets kind of meta-theory-of-landlording shadow-of-a-question, not the reality I deal with as a local landlord.

The owner recently removed a sink to make the duplex a SFR.

Houses are typically 10%, a building of this size could cost only 5-8% of the monthly income for property managementYou can force appreciation to boost the value of the property, resulting in: Instant equity that you can borrow against to buy other propertiesThe opportunity to sell in 3-7 years for a significant profitHigher valued property means higher personal net worth – a higher personal net worth means you are able to buy higher priced propertiesDisadvantages 15 tenants to deal with15 toilets, sinks, etc. to deal withHowever, with a good property manager at the helm, you wouldn’t have to deal with the two items above, my property manager wouldMore activity because more tenants (again see the third item above)Requires stricter, more focused asset management skills and heavy oversight of your property managerPLEASE NOTE: I made the examples simple to illustrate a point and are not real accurate on the specific costs involved.

Right now it has one room that I believe could be considered a legal bedroom if I add a secondary means of egress (the prior landlord was using it as a bedroom already),  plus another large random room with a sink and toilet in it that could easily be turned into another bedroom. 

All too often people dream without setting goals that are achievable and incremental in order to make their dreams a reality.

@Henry Escobar They say everything happens twice, once in your mind and once in reality.

These tiny homes aren’t cheap in reality and I think will lose the interest of the majority of people.  

I'm a plumber hvac guy by trade,  do a lot of my own work and  tend to spend a little more on rehab/mechanicals up front, right down to the kitchen sink drain, but get almost no calls for repairs.

You did the right thing by sharing this reality with the person that you were speaking with.

I guess the reality is that with the 203k loan, obviously the bank is lending you more money, so you will need to use a greater amount of your refinance to payback that loan, which is the only downside here then?