The numbers look good now, and they meet the 2% rule, but if I was planning to sell in in say 10 years and I could only sell them with the lots for half the price that's a lot of cash flow I have to make to help off set that.

First I decided that I wanted to update the kitchen and bathroom, replace the galvanized pipes and hot water heater, and add a half bathroom on the main floor.

As for selling the property an cutting my losses, that is not something I am against; however the offer I have (from the neighbor) is less than half of what I paid.

Thanks @Trexie EusebioYes, I am actually more than half way through that guide, and it is very very informative and helpful.

If the carpet was 50%  worn  out when they moved in, and it's now ruined, you're probably safe charging them half the cost of it when new or to replace an equivalent quality today.

(LBP concerns potentially) Realistically Ben, my guess would be that you would need to get this at closer to half of what she's asking.

The home is unique in that it has a separate entrance to the basement and an easily configurable entrance to a great little studio area with a half bath.

The 100 or so that I bought are in the San Francisco Bay Area and Sacramento and everywhere in between...and they were bought in 2011-2013 when prices were about half of what they are today.Which brings us back to the "why" of the question.  

Are they better investments than a condo at around the same price (but with half the sq ft)?

I am a licensed, bonded, insured Electrical Contractor that moved to the Omaha area after the housing melt down. 20 years experience with about half of it in residential.