Sounds like the legislatures are just trying to make being a landlord or PM that much harder. 

I know there's so much gray area and a lot of variables, questions, etc., but I'm just looking for any insight.

It's not worth spending so much money on a short basement even if you can, as it will affect the end result. 

It's much harder to find a quality PM that has solid policies and processes in place to protect your property, income, time, and sanity with little owner involvement.When considering investing in a market, I recommend starting with your search for a good PM.

Initially, we plan to invest in lower-risk opportunities such as arbitrage to gain a better understanding of the market.

Choosing properties isn't much more than knowing which numbers to run and deciding what you want to accomplish.

Businesses are much better for cash flow than real estate!

Additionally, townhomes appreciate much slower than detached single family homes tend to.My personal advice would be to sell this property and then 1031 either into a better property near you that is low maintenance, or (probably better for you) invest the capital into a syndication or partnering with an active investor where you should get returns better than the stock market. 

We currently do not have much money in saving due to recently rehabbing both of our houses.

Happy to connect and send over my real estate attorneys and they can better help with this question.