And you are correct - your adjusted cost basis is your purchase price + capital improvements - depreciation. 

I think that $1195 would be your very top end on rent and you would adjust rents downward depending on the type of work you do to this property.Goodluck,

@Zack Rosenbaum,     What do you think about moving tenants around and adjusting all the prices?

It is pretty informal and we treat it as all of us sharing living expenses (split the mortgage cost and utilities with some adjustments for living space and my costs in acquiring the mortgage).

You just have to adjust, and sometimes that includes not only strategy, but markets as well. 

After adjusting for risk, your upside is mediocre and your downside is unattractive.

Or would I have to wait until the lease is over to adjust the rent and add the utility?

Be sure that the addition has climate control and can be counted as livable space. 

We recently did a refinance to lock in a rate, as it was on an adjustable rate mortgage.  

You just need to adjust the strategy depending on the market you are dealing with.