He then begins going through the entitlements (zoning, getting lots drawn, etc...) by the end, he has lots drawn out and approved for building (this can even include streets and offsite work).  

Are there are clear red flags to be on the alert for?  

The parcel is residential vacant land, zoned A1. 

Is the process of switching zoning to multi-family a fairly simple one?

Current owner has had the house over 5 years and it has some significant deferred maintenance but none of the traditional red flags like structural/foundational issues etc.

Unless you made an attempt to rent the unit, regardless of how or who classified it as a rental, you were not conducting business and the answer is NO.Filing a return with expense and no income is a BIG RED FLAG to the IRS and you will be audited and classified as  (believe it or not) conducting a hobby :sigh:

I would make sure to do due diligence on any property you look at to make sure it isn't in a war zone where variables may eat away potential cash flow.

Choose "Zoning Map" and look for RM1 parcels.

It failed inspection and was red-tagged.My plumber said Plumber C is liable, under law, essentially because of the red-tag.  

The codes, regulations and zoning are prohibitive.