Might consider a dormer out of the roof to add space.As to the drive, look for space to add a parking pad off the driveway, it's additional parking and you can back out of a garage into the parking spot and head out the driveway driving forward instead of trying to back out on a busy roadway. :)

It's not a huge deal, because the property cash flows approximately $200/door, which is a good return on $40k investment ($10k down).

Does anyone have any experience with investing into a rental property that has a connected (row house) abandoned property next door?

If you're just starting out and are short on funds, try wholesaling for a while until you have enough cash to invest in buy and hold.Once you start buy and hold, continue wholesaling as well for cash to buy more buy and hold.Once you get to, lets say 10 buy and hold properties, and have been wholesaling as well, maybe it's time to do a 1031 TDE into larger multifamily (think 50 doors or more) where you can control the value of the property better.

I will be using a VA Loan so me and my wife will have to live next door.

(granite, new fixtures, new cabinet doors, new wood/carpet, new paint, new toilets, landscaping, seal/spray the tub, new lighting, new doors, etc).

The current cash flow is about $100/month ($50/door).

They have reasons for their rules which I question all the time.Believe me I have had shouting matches with board members at the condo development .I built a 40 unit condo community starting in 2005 of beautiful 3-2.5 units with attached garage selling for $325,000.

I may have a investor who actually bought the same sellers property right next door.

I know when it comes to banks it isn't so much the name on the door, as the people that are inside the doors that make a big difference.