It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.Make sure your property manager is a licensed real estate brokerage.Understand you can not eliminate all risk, only mitigate it.

I know it seems obvious they did but they can claim easily that they never went into the basement so they never knew.

We lived through one for my son's new build & it was all over the place for pricing/subs/supply availability & we even added a prayer for on-time, on-budget completion!!!

This sets precedence for any tenant to claim they expected to remain there and as long as they let the owner know they can sue using that case as a basis. 

The commercial space is occupied currently, but the two apartments above are vacant and need a complete rehab.

That means that NOI in year 2 would be $5,100 (still a growth of 2%).That's right, complete brainf*rt in here.

I can get 550 a month on the 1/1's for sure and even at that rate the numbers are very favorable being every unit will be completely rehabbed, so from a cash flow standpoint its good.

Then give that list to a handy man to bid out the work and use that bid to make any claims on the security deposit. 

Although I would prefer section 8 tenants it just sucks the amount of time it takes to get the inspection scheduled/completed, then pray that your apartment passes or they will have to come back and reinspect, and finally have the apartment approved. 

We only show to people who have been completely qualified by our process, and that becomes a very small number.