However, the sponsor was being evasive on other wording too (about the renovations having the requisite permits and approvals from the DOB).

I don't cashflow in my owner occupied duplex... but I just about break even giving me extra money that I would normally be paying in either rent or my full mortgage.

Go down to the city planners dept and see what the city had permitted it to be.The additional unit may be unknown to them and therefore illegal until you can ask the city to grandfather it in as is or make the necessary safety changes to make it legal and insurable.

House also doesn't have operable A/C...so I don't see any extra motivation to get this done "in the near future" with sweltering AZ heat. 

She had some extra furniture in storage that we paid to use for a short time.

Frankly if you have extra money you can keep that in the bank as a safety net until you feel comfortable enough with the income from that rental to then buy a second property.Most of my clients purchase with a loan but then as they generate income the revenue is put back into the property, through either improvements or paying down the mortgage. 

The clause mentioned is a prepayment penalty, where an extra percentage is paid to make up for it. 

Some sheetrock, wall repair, paint, screen repair, hanging fans and fixtures, checking the A/C, etc.I would like to establish a long term relationship with a contractor that has the skills, reasonable pricing (as we will do a lot of these), and can pull permits where needed.If this describes you... please contact me...

I am looking at low down payment owner-occupied options through a portfolio lender at 5% with PMI, that will go away once reaching 80% LTV (so will get some extra cashflow after approximately year 7).In my analysis I account for Expenses including (common utilities, taxes, property management (10%), Long term maintenance (10%), short term maintance/repairs 95), legal, misc, vacancy (7%) etc, etc.)

That being said I recently read an article about how permits for rental buildings are outpacing demand (as noted here).