Unless you hate the rental (I sold 3 of my least faves over the last 11 months) I'd probably keep it.Transaction costs will eat you alive if you sell every few years.

We have worked incredibly hard (7 days a week) and lived very modest (eating beans and rice) to save up $400k cash. 

From what you described the kitchen, bath will eat up the $100K already.

Even long distance REI in not practical because I work long 10-12 hour days and have just enough time to eat and sleep and do it all over again.

The make your own tongue-n-groove type, so when they start eating lunch with you , it means something. 

I would split the cost (or eat it and tell them to get rental insurance and email me proof).

If you failed to ask for the money up front you will eat it 10 times out of 10.

They had to rent a hotel room and eat out for a few days.

“You can’t eat your house”If you believe as many people do the market is at a high, that $20k in equity disappears fast, and could lead to a situation where you’re underwater and negatively cash flowing.

In time your expenses will increase considerably on individual doors and eat up your cash flow.I would be looking to sell now while the SFH market is still high.