A technically build-able in CA is still an expensive gamble.

A good quality structure built by a Master Builder will stand the test of time, vs. a scrap of paper, or an entry in a data base, based on how much the next person will pay for it.You can add value to structure and collect rents even in the bad times.Where people run into trouble is when they borrow too heavily, and the bank takes the "Still Valuable" asset from them.With a stock, it's a roulette wheel gamble, as to how much it will be worth at any given time. 

You are basically gambling your business on a stranger.

Gambling with someone else's mortgage is not something to mess around with. 

My rational is this:As a REI, I am very comfortable gambling on the future, after all, it's what you do.

Option 1 is just gambling on appreciation and sounds like it doesn’t fit with your long term goals. 

If you buy the property with tenants already living there, you are gambling as to whether or not they are good tenants.

I've been surprised way too many times with major things wrong....unless the house was an absolute steal and then it might be worth the gamble.

but that's what it is, everyone is beaten to death on the cash flow is everything and appreciation is gambling.. so they really do it to themselves.. and have no one to blame but themselves..  

Your gamble (and your ever-trusting Dad's) paid off.