Or another equal property at $1,500/mo?

While I don't deal with HUD, I deal with human services caseworkers all the time.HUD is not going to view the landlord and tenant as equally culpable, in part because of the perceived power imbalance.  

Equally, I’m thinking it’s a smarter choice to stay in the condo due to lower interest instead.

It is my belief that AB1033 does not grant any powers that a jurisdiction did not already have and is unlikely to be of any assistance in the condo conversion.  

Particularly for luxury or higher revenue rentals (let's say above $75-100k in gross annual revenue) a 25-30% management fee equals a full time  employee wage/salary.

While you clearly don't do that, it does introduce ethics into the equation and clearly not all managers are created equal.  

Sure, money can be lost as equally as gained.

I was under the understanding that I could do a room ratio and deduct 50% of the upper unit expenses due to all other areas being equally shared.

Selecting the right tenant is probably equally important than selecting the property to buy in the first place - in a way the house is not cash flowing, it's the tenant.

It is my belief, but I have never seen any stats, that over 50% of cash purchases are either 1) not actual cash as HML, private money, heloc on different asset all count as cash at purchase 2) are short term cash plays such as would be done by a flipper or BRRRR.