You're not taking into account time value of money which is extremely important over long time horizons like this.

Is section 8 the best option here, or is appreciation on the horizon?

Coupled with the fact that she has a much shorter time horizon at 60 than she would have at 30, 40 or 50, I would lean more towards getting this money into the hands of a fee based investment advisor and getting it deployed into exchange traded funds (or other suitable principal protected, low fee instruments) that will (if history is any indication) return her much more overall than the real estate portfolio will (if history is any indication), in a completely principal protected environment.  

I am looking to broaden my horizon and diversify my portfolio. 

All great stuff that can help expand your horizons.

Is there some market changes, planned job development, housing, ect on the horizon?

Congrats on the 5 year horizon...that's awesome.  

I understand FHA loans allow up to 75% of rental income to count towards personal income as long as the unit is rented, but I'm curious what other options or outcomes are there if its not an FHA loan, or the tenants are not in there, and in particular, curious if anyone in Sonoma County has dealt with this and can recommend a mortgage company that is flexible with this. 3) This would be my first multi-family property and I'd like to know any particular issues to try to avoid if anyone has an experience with problems or challenges with their first multi-family in the first year or two.4) Lastly, any thoughts on market corrections on the near horizon?

Real estate is the next field I would like to broaden my horizons in and through a few internet searches came by this site fairly quickly.

Investors can expect returns in the 10-15% range, depending on the deal, the time horizon, and the cash flow along the way.