The house was given to them when my grandpa died.

If I were in your and/or your mother-in-laws shoes, I would go to a local bank and use the free and clear house to secure a $150K+ line of credit. 

This question seem pretty naïve for someone that's flipped about 30 houses. 

If you can continue to get an 11% return, I would stick with stocks.$500,000 will turn into $1,000,000 in less than 7 years.Great return and little to no work.You may want to consider spending $400,000 on stocks and $100,000 on a rental property.Take the $100,000 towards a property and see if you can make a return and handle the work involved.Best of luck!

But with the zoning regulations, the pricing of houses seem so impossible to achieve.

Yes, I'm gonna bang the REI gong LOUD-N-PROUD because your on BP, this is our house bro, the house REI built. 

Of the many strategies I've looked into, House-hacking and short-term rentals piqued my interests. 

Honestly, why would anyone do that when the median house price of NYC is almost 1 million.

I wonder who still makes houses like this.

My favorite ones (as a Contractor) are those like : "How much will it cost to re-wire my entire house?"....."...