Being that she’s on the mortgage, does she have any leverage to pursue any legal action be put back on the deed, and consequently refinance and get the house from me?

Since you are fixing it and updating it, you are able to charge more then what you would have if you didn't fix it up.Also there are a lot of more benefits when you live in the property, than if you didn't, and especially because you are going to be in Portland, you have more leverage on certain things then the regular investor who doesn't live in the property. 

Diversify my current investment portfolio which is mostly domestic stocks right now, the real-estate investment seems to be more stable and cooperative in case of good deals and leverage usage.2.

This also means that to maintain morale as a young buck eager to have fun, I would leverage any possible way to have fun at low or no expense. 

My FICO is around 740(2) Since my debt will increase significantly after the refi, I would assume that leveraging further using the $400K will be more challenging (and risky). 

We leverage the courts and then the bailiff's (or the sheriff depending on the city) to do evictions properly to avoid liability down the road. 

For multifamily you're gonna get the highest leverage at the lowest rate from the agencies.

However, I would be, for most, not going out of pocket by leveraging my equity? 

If yes, how would you organize the sale and development of a new property and give up losing money to taxes?

Using a partner (experienced one0 for your first flip in this manner or any other similar approach of leveraging others experience, money, and knowledge is a great way to start.