Excellent deal for the minority partners (zero cash contribution) but a low ROI even accounting for tax savings of $24k/yr on a $500k cash investment.

A simple mistake can cost you more money or time.Here's a pretty good guide: https://www.clarkcountyohio.gov/DocumentCenter/View/5210/CCO...

Converting to a 2 bedroom and studio may be possible, but is all additional cost on top of structural concerns previously mentioned.We do not have a lump savings to cover the cost for this rehab.

You'll save on realtor's fees.One thing to remember is unless you are flipping, selling a rental and buying a new one frequently is going to lose you money. 

Does it usually cost money to have a contractor come out and do this?

With my dreams of controlling a rental property next to me dashed due to poor home structure I started thinking this building used to be a home so why not flip it back to that and make some money off it!

On the flip side, I could room in an apartment with a roommate for $900-1000 and save the extra cash for a year to put into another property.

All you need is a team, :) Well and money LOL,  Lol, money I have, the team is the roadblock.

Both are making money and have reasonable cap rates, a bit lower than I would like, however, not horrible Imo. 

I considered private money for purchase and rehab and refinance at a later time.