If updating the interior or exterior will allow you to increase rent and get paid back in "x" number of months, I would do it.On the other hand if you have good solid tenants I wouldn't mess with anything.Since your grandfather had these for 20 years some of the tenants may be due for a rate increase without any improvments

I find it easier to put out rent increases for each person rather than trying to raise the whole rent for the house.

I think the answer to the essence of what you're getting at here will be revealed by:1) What is the nature of this "little business" that you're starting? 

Can rents be increased? 

I believe the calulator was showing 6.85% increasing over time 

Just be aware that many people are using the same strategy and as a result the prices of small multifamily properties have dramatically increased over the last few years. 

Owner pays water/trash/sewer & natural gas for water and heat.

The moment the pre-payment window is done, the investors chances of loss via refinance increase.

When the time for the Refi comes around on a 1-4 unit property, I was under the impression that the appraisal is not based on how much you have increased the rent during your hold but rather just the typical appraised values of other similar properties in the area (whether it be other 1-4 unit properties or single families in the area) and that the increasing of the rents while holding the property only comes into play when the asset is a 5+ unit property - is this correct?

It's unlikely that any actual tax would be due because of the increased $11.18 million lifetime exclusion, but you're supposed to track the exemption used and technically have a filing requirement.