I ran into this issue when I initially started learning about long distance investing and I created www.zipfinder.co which aggregates a wide range of data on a zip code level to help streamline the research process for investors. 

Was it permit issues (work done without permits), code violations, or something structural?

Your phrase "doesn't make sense" basically applies to the entire tax code.

They just have special treatment exempting them from certain chapters of the tax code and subjecting them to others.At the risk of stating the obvious, you and your retirement accounts are all separate taxpayers.If you invest in a syndication that uses leverage using a retirement account, it will receive a K1reflecting income/loss just like any other investor.

The Augusta Rule (Section 280A of the tax code) allows homeowners to rent out their property for up to 14 days without having to report the rental income.

We also use the tax code to our advantage; deductions of property taxes, mortgage interest, expenses of our property and depreciation.

Secondly, an additional third unit requires either a zoning variance or special use permit on your local code, aldermanic approval notwithstanding.

For RE Investors there is a cap on deductions but not for RE professionals (per the IRS Code).

Investors should try to expense to the max that tax code allows to shield income (hence the golden pot of accelerated depreciation). if investors incorrectly capitalize something that should be expensed, they essentially lose 1-2x the value of what they incorrectly capitalized.

Generally there aren't huge "loopholes" to let you avoid things in the tax code.