It sounds like you want to "blend in" vs "stand out" with your design. 

Short answer: find a blending of both, while RE is has less liquidity it is much easier to encumber for lines of credit, etc, while maintaining your ownership, tax benefits, and income potentials.

A) fire place, this should be a focal point but it blends with the paint and flooring.

Possibly a househack live and flip aka ("Blended Househack" by Ben Leybovich in his book "House Hacking") could be a possibility but otherwise I would just do a rental property. 

Do most people do a blend of both?

B. Lend

They would LOVE to get 6 plus cap rates and over the years blend up the cap rate to the 7's and 8's.  

So if you look at your weighted average, you are talking about a blended rate that is well into the mid 5's and subject to continue changing over even just the next year or so.

With rental increases the cap rate blends up over the 10 to 20 year primary lease term This is single tenant NNN. 

What a perfect blend of convenience for both parties.