Within the IRS technical audit guide they specifically highlight being several hundred miles away from the property as a potential red flag. 

After coming back with a solution of taking it off our rent if we paid for it, they said they would pay half.

I'm considering a value add if the construction costs work out to add a 2nd bath (either full or half) to one property than is a 3/1. 

I am curious what shape the house was when it was half-gifted to you because reading between the lines it seems like you squatted in the gift and didn't do any maintenance and don't really know anything about owning or maintaining a house.I also don't know why you want to get a rental and be a landlord when a house you got as a gift is a disaster.

for instance even though San Diego has had amazing overall appreciation over the last half century, it was still the #1 in appreciation the past 12 months at a rate twice that of the national average. 

It's a 1/1 with two car garage on a half acre composed of two Tax lots.

Seems like it's just 6 of one, half dozen of the other.Thanks.

(He works a half mile from the house and is home before me.

@Mia Kirsch we actually got a 2nd FHA but hard to find a lender who actually knew that was a thing and had to be more than 75 miles away for a new job as we didn’t meet the other criteria like larger family.

Half of my tenants live like this.