At the end of day, I think you're spot on, the rewards certainly outweigh the risks if done correctly. 

Do the pros of landlord provided appliances outweigh the cons?

I don't live in the area so take my statements as random internet babble:1) The tenant rented the house as it is, expecting a structural change so she can have a larger bathroom is silly.2) The fallout to a Representatives campaign over something so silly far outweighs any benefit the granddaughter will ever get. 3) In my area it would be grandfathered.

@Jim Mac the tax savings from the primary home exclusion greatly outweigh the small interest rate difference between an owner occupied loan and an investor loan.

Additionally, all the examples I mentioned came with such volatile political strife that would far outweigh any small benefits you may hope to gain. my bet is that any financial mess, no matter how catastrophic, will be short term.

I think the cost of building another 4-plex outweighs the income potential in this location. 

Adverse possession is nearly impossible to win and the cost to do so FAR out weighs the benefits.

I recommend doing it if the cost outweighs the benefit.

But my feelings of lightness and relief outweigh my feelings of doubt.

It’s sounds like the pros outweigh the cons, and there are contingencies to mitigate the risk, as you mentioned by screening appropriately.