It is a walkout basement, and the two bedrooms have windows, closets and doors.

Full paint and flooring (including removing some wall paper and glued down laminate flooring), patched holes in walls, replaced cabinet doors that were missing, replaced a few lighting fixtures, reconfigured closets that were missing hardware, cleaned up back yard.

(There are several closets in the basement that can additionally be used for storage already)I am sure there are some liability issues and I would need to make all tenants sign a release of some sort.

Hi Joseph,Why not make story 1 Grandmas house (with everything she needs (quick temporary type remodel--walk in/roll in shower, handicapped water closet, one of those beds that auto tilts up at the head, and a new big screen TV. 

Your codes dept can help with the permits and requirements (insulation, drywall, doors, closets, wiring, window size and heights, including if you need a licensed contractor, professional drawings, the inspections, etc).Keep in mind, if the tenant doesn't have the required number of dependents to get a 4 bdr voucher, adding a bdrm will just cost you money up front and on taxes, but not get you more from the S8 office.

Two den sized rooms would become his/hers walk-in closets, one turned into a master suite nursery or sitting room, and the final one adjoins a tiny bathroom that can be opened up.

The previous tenant left a ton of stuff in closets and in the fridge.

She could easily make it a 4 bedroom, the living room just needs a door & a closet. 

This home also includes a Private Suite with a walk in closet and a private bath with a walk in shower.

This can be found on the siding, under the sink, on the circuit panel door and in closets.