It won't be the highest return on investment but you can probably get better returns than the stock market at potentially lower risk if you do it right (money secured by real estate). 

Be sure to set money aside for potential repairs and cap ex. 

I have had a potential opportunity present itself to me from a family friend, and client I am assisting in the purchase of her new home.

It's about 3.7k sq ft and zoning is 1-4 units residential.I'm wondering if there's any potential to turn it into something else, e.g. storage, garages or 1-2 mobile homes.

These initiatives have the potential to significantly impact various segments of the housing market.

Could potentially assume the loan (if there is one) on the family rental property.

First - it doesn't even seem like you are sure what taxes you are or are not paying for.You should verify this before bringing up the potential situation with the mortgage company.You can review your escrow balance and see what taxes were paid during the year.

When you sign an as-is contract that means anything that comes up is on the buyer to fix.My group pivoted to a market where you can get in for 70k - 100k in a house in a c+/B area that has real ARV potential and you get much closer to the 1% rule than you do in Philly.I still have a group member who has a project going on in Fishtown on Salmon street. 

We do not lend in Indiana so we can not help you here  but we do this product for well qualified equity rich borrowers with potentially limited income all day.