Nowhere in the IRC, regulations, rev procs, revenue rulings, or court cases does it mention you "need at least 10-20 units to justify the hours". 

Thank you Jesse, I will look into the laws and regulations associated with these facilities.

You have already been studying your state regulations, this puts you miles ahead of most new investors since they usually never bother.

Ontario is extremely tenant friendly, the LTB has a unwritten policy of not granting evictions, so you must study/memorise the RTA and  fully understand how it is regulated.

@Helen Zhang interesting stuff...we just made it through the initial regulation round here in Columbus...not too bad of an outcome, but this is just the sign of the times with this disruptive technology...

This is why it is important to know the laws, procedures, and guidelines that govern the business you are in.

Treasury Regulation §1.162-21

Additionally, requiring a borrower to go delinquent before consideration, would subject the servicer to penalties and sanctions by CFPB and while CFPB is tasked with regulating banks over $10 billion in assets, that financial institution's regulatory authority will follow CFPB rules when nailing the servicer for their violation.

Any code regulations / building modifications needed for the new use?  

This would depend largely on the lender and specific regulations/guidelines tied to your 2nd loan.