Set to Inherit San Diego property: Build, Rent, or Sell?

[Lauren L Pokladnik]

Hey guys! New to investing and Bigger Pockets, but super eager to get started on the journey.  My husband and I have spent the last few months reading all the books and listening to all the podcasts, essentially going down the rabbit hole as most rookies do. We have been trying to decided which asset class will be best for us in our local market (Willamette Valley, OR). However, we keep coming back to the potential that the best first deal actually lies in a property that my mom owns in San Diego. A little background on the property ...

My mom purchased it for $340,000 in the 90's in cash, no mortgage on the property.
Now estimated at $1.2M as is. It's a 1 bed, 1 bath that hasn't had any updates done since purchasing. Surrounding similar lots have been redeveloped into $2-3M homes.

I obviously need to rehab/build a house on it to bring the value up to its potential, but I'm not sure where to start with this? Who do we reach out to first (builder, appraiser, architect, lender)? What are the steps to transforming this 1 bed/1 bath shack of a house into the best investment possible? 

After the rehab/rebuild is finished what would the most lucrative option be? To hold and long term rent?  Short term rental given the location? Sell and do a 1031 into further investments?  Here are some numbers we pulled from AIRDNA and Zillow to help weigh options. 

AIRDNA: 

As is (1bed/1 bath): Projected Revenue $50k/year, Net Operating Income $24k/year

Post rehab/rebuild (3 bed/2 bath): Projected Revenue $120k/year, Net Operating Income $76k/year

Zillow Rent Estimate:

As is (1 bed/1 bath): $2,900/month

Projected rent based on comps in area: $6,500/month 

We would also more than likely include an ADU in the new build. Both to maximize profits (two rents) and incase we need to use the property to care for aging parents in the future.

Another thing to consider: 

My mom is planning on giving me this property as my inheritance but was considering just gifting it to me before she dies. However I read about "step up in basis" and how we could avoid capital gains tax on all of that appreciation if she just leaves it to me after death. Along these lines, I am wondering if it is more lucrative to go ahead and increase the value of the property as much as possible now, rather than waiting until I inherit it? 

Any advice on the steps we would need to take to turn this into an opportunity for our family would be so appreciated! We have been tossing ideas around for a long time, and we thought who better to ask than our new Bigger Pockets community. 

Thanks in advance!

Lauren