We were even offering a bonus to buyers agents, we often do on lower priced stuff.

I put in $800 (a new fridge and stove for lower unit) after closing.

And it’s not a grant, it’s state specific  first time home buyers mortgage program that is offered with lower pmi and interest than others in the area and it did require owner occupancy.I only ask because the area where I bought isn’t the best but isn’t the worst if that makes sense.

The lower unit needs work (about $12-15k) but can be converted to a 3-bedroom unit.

But I think you're causing yourself unnecessary stress by looking at these (admittedly complex) issues as things you have to solve from the ground up.  

Getting into higher end for putting in lower grade product.

By the same token, I don't believe your repairs and maintenance expenses would decrease because you are charging a lower amount of rent per month. 

If the feedback you get from potential buyers is too high, then you'll need to go for a pricing reduction or reduce your potential margin to meet their need for lower pricing.

For $12,500 you will pay a lot higher fees and costs due to the lower amount.

Interesting to hear that offering a lower return may have got him more traffic