I recommend you do some market research on the price points to purchase and what you can get for rent to answer the question yourself.Regarding a 3 to 4 unit, If you decide to use an FHA loan make sure you research the FHA self-sufficiency guidelines. 

I know I need to do something with all of this untapped equity.What do you think are the best options for me to utilize this equity effectively, and why do you recommend those particular choices?

Since you're purchasing your first home, you likely don't have this rental history.Lease Agreement: While a signed lease agreement is a positive step, it might not be sufficient on its own for a lender to consider the rental income in your mortgage application.

I did not know that triplex/fourplex would require self-sufficiency test.

Regarding not good credit, I usually request a co-signer and copies of their bank statements showing that they have sufficient reserves in case anything arises.

Typically in California, a Will alone is not sufficient to avoid probate - which is a pain, time consuming, and very expensive. 

A limitation system that actaully works would be a good choice.

You’re spot on, you can potentially use a 3.5% down FHA loan for new financing if income and rents from the other three units are sufficient.

Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.5.

From a business perspective only the choice would be stay right where you are.But you are at a time where a vacation rental you can use yourself is attractive.