This alleviates any tenant claims that the tenant may claim if you were to terminate the lease.  

In her personal life, she is involved with someone who deals drugs, as they do drugs and are involved in illegal activities.

Would a Lamborghini salesman waste his time taking a guy for a test drive if the guy looks like a homeless person on drugs? 

Call the cops saying they are running a drug operation and they get arrested.

A friend of mine is a detective on the police force, and he cases out drug, prostitution, human trafficking, and organized crime.

If its not problemmatic, then I would have ZERO issues with it and let the person who is a good tenant stay and not have to upend their life to move out especially with declining health.Now if the kids are drug dealers and have other people coming and going, compeltely different but if its just them - I would have zero issues with it.

I've had similar issues here in Chicago with Squatters and drug dealers.To do a 203k, you need to live in the property for at least a year so technically, that wouldn't be an option. 

This will help alleviate the DTI issue I was facing on the personal side.

However, I've seen other syndicates use hard money loans to cover and also sponsors that have created a new side car to add capital until relief can be alleviated so that investors are whole.

Using this explanation (which is 100% true) alleviates yourself from appearing as though you have more leeway than you actually do.