Verify that they have jobs (still) and that they have been consistently paying rent (on time).

I'd get a few other agents to triple check your comps and maybe even get an appraiser to verify your findings.

Are your verifying government ID? 

He had also not been informed by the selling agent and there was nothing on our contract to disclose them not being permitted.I realized I made a HUGE mistake in not verifying this information(noobie mistake) in further detail to ensure what was permitted or not.I also realize that there is a chance that the permits were pulled prior to 1999 and everything is okay here.

We did receive an email a few months ago from Aurora City Gov asking to verify that the Airbnb was in our primary residence, so it seems they are somewhat attempting to enforce that rule.

In his world of trite clichés (don't work for money; let money work for you....buy low, sell high....work for yourself, not someone else; own assets, not liabilities, etc), there is always a story from a person who has a first name and a last initial whom you and I could never contact to verify that A) said story actually happened and B) how hard they had to work on their own to make it happen.So, I would not trust him with anything unless I personally vetted the details IN DETAIL. 

If that is something you plan to do, just make sure that you verify that it's allowed.

The building is fully leased and has positive cash flows of about $5,000 a month according to him (I need to verify that with his records).He did a cash out refi on about $300k a couple years ago so the mortgage is still close to that, let’s say $290k.The issue with a 1031 exchange would be that he doesn’t have any additional cash laying around, so even if the sales price was $290k, that would go directly to the mortgage payoff and he would have $0 to move into a new property.

So, select the lender based on their verified 203k experience and use a contractor with the designation as a Certified 203k Contractor - 203kContractors.com.  

I have also verified that they have enough space in the current location to grow their practice.The numbers work out for me.