Is it ever a good option to pull from your 401k to make a down payment? 

Perhaps when the business lines of credit grow after sustained  responsible use, the value will pay off in the longer run as compared to other options I may have missed/not thought of (such as what you suggested).

Yes you would certainly need to close off the upstairs from the downstairs preferrably with a wall, placed in an area that you can easily take down later down the road when you sell, not to say that you couldn't sell it as a 2 unit but it would be nice for you to keep that option later down the road. 

It would also give you the option to live in part of it, separated from the tenant. 

I think they are rent capped by the government (I wonder when that runs out), so raising the rents is probably not an option, and having experience in this niche with all of it's "Red Tape" and paperwork would be helpful.

Since I am leaving on tour, I have a few options. 

This rental property will be designed with a keen focus on generating a healthy cash flow.Project Blueprint:Budget: Allocated at $200,000, covering construction and all related expenses.Focus: To merge energy efficiency, durability, and tenant comfort with cost-effective construction strategies, making the rentals both affordable and sustainable.Location: Currently scouting – I'm open to suggestions and insights on ideal locations supporting this vision.Strategic Planning:Efficient Design & Planning: I'm considering compact, multi-functional layouts to optimize space usage and incorporate cost-saving construction methods without compromising quality.Sustainability & Efficiency: The plan includes investing in top-notch insulation, air sealing, energy-efficient systems, and sustainable materials to reduce the building's carbon footprint and operational costs.Budget Management & Cost-Saving Initiatives: Careful budgeting and exploring value engineering options are crucial, alongside seeking out grants or incentives for energy-efficient building projects.Community & Sustainability Goals: To create shared amenities to foster a community feel and implement systems encouraging tenants to monitor and reduce their energy consumption.Seeking Community Insights on:Cost-Effective Building Strategies: How can I ensure the project remains within budget while achieving high sustainability and efficiency standards?

Also, we explored the option to do a boundary-line adjustment and compensate the neighbor for it, but he has a grandfathered clause in that allows him to build on the lot without meeting the new city requirements.

There are a lot of customization options, but the updates they rolled out a few months ago automated most of them, so there's little reason to touch them now except in really oddball cases.I'd be happy to jump on a Zoom or Google Meet if there's anything you're stuck on.

Be happy to chat over the phone and give you a few options.