Critical mass is the true American Dream. 

Real Estate investing has always been my ultimate dream.

Your scenario is what most investors DREAM about. 

Where will I get the money to fund my dream?

But if you don't need the money now, San Diego is probably as good a bet as any to outpace the national home price appreciation rates over the long term.The other option is to cash out and put your $500k of equity to work somewhere else, maybe in turn key properties in the Midwest where appreciation is a more modest 2% (every city is different - I used Chicago to come up with 2%), but your return is weighted more to cashflow than appreciation (less risky).

Focus on these steps consistently and you will accomplish your dreams in no time.

I think that's what all dream about secretly - buy a delapitaed building in a bad area, but after they built the new shopping mall, highway etc it all turnes around and now we own a property in a really nice part of town.

Your vision and desire to even dream of doing a project this big, your resourcefulness to put all the pieces together, the ability to sell your idea and yourself, your honesty & integrity with everyone involved, your willingness to pay off your debts and make the hard sacrifices and your humility to share your experience are the ingredients of  super sucessful entrepreneurs.The things you've learned from this experience will help you for the rest of your life.

I am most interested in Vincent T's suggestions, especially "rent to own" with you holding the note. this way, two families' dreams can come true, even if the banks don't believe in you.

It is certainly not as good of a reason I imagined myself choosing when I first started dreaming about real estate investing, but frankly we are just tired of being stuck in analysis paralysis and want to get started in the school of hard knocks.