Some other alternatives that may exist in your climate would be furring the exterior shell out, Adding a continuous Rockwool insulation shell, and then creating another layer of exterior siding.

The existing/inherited tenant doesn't sound like he's complaining, so much, as he is letting you know what needs to be done in his unit. 

I don't love the idea of paying PMI or extra fees, and the first lender I've gotten pre-approved with doesn't even do FHA loans, although I would probably shop around before committing to a mortgage anyways.

@Cordell Critchell In @David Krulac's book, he mentions some great tips about developing rural ground, like trying to use the existing roads, instead of paving your own in order to save money while splitting the land.

Blue Spot Home Loans - They said they'd consider, “future rental income” if you secure a lease agreement AND security deposit for rental of your existing condo prior to final loan approval for the condo you will be purchasing. 

Are there existing tenants in place?

We bought this about a year ago and haven't had a chance to do too much yet due to existing leases, but I'd love a strategy moving forward if you (or anyone else) wouldn't mind sharing. 

I would do a cashout refi on your existing property and use that and your existing 50k to invest. 

- What are our options and the right thing to do, so we don't feel we overpaid for the 125 sq ft that probably doesn't even exist!

Love this thread.The posts have really made it clear that opportunity always exists, its the individual that needs to skill up and capitalize Barriers aren't increasing , just the environment keeps changing  requiring a different approach