Positive SolutionsProblem: In my county small multi-family houses are nearly non-existent and short-term rentals and second-cooking-areas are illegal.Solution: House-hack while renting MTR to traveling medical professionalsProblem: I didn’t know the many laws of the countySolution: A hired attorney 1) informed me that the county calls a house-hack a boardinghouse and 2) drafted a very comprehensive agreement that includes answers to your list of questions.Problem: Interpersonal problems can be a risk.

Adding the current mortgage and utilities would be roughly $1,350 resulting in a profit of $650/mo.

Hello, I currently have an empty space (about 12 feet from the property to the sidewalk and 8+ feet wide).

But keep in mind if your using money you cant afford to get back then buying action property might not be appropriate for your current endeavors and its better to just buy open market were you can do proper due diligence and know you have a build-able site.

These currently aren't fancy units. - Value add - When building additional units, what steps should be taken to determine how many can be built? 

I am currently enjoying my 1k monthly income with no debt, and I am nervous about leveraging.  

If i use 2.5% long term CPI and 75% LTV, the return from appreciation on a new purchase would be 10% or double your current return on that equity.  

If it does vest, then the 2nd isn't currently $8k and the paperwork could further help your case.Other option is to completely ignore the equity in your residence and look for creative financing on the property you want to purchase. 

I currently have a three bedroom with no garage or basement on a very small lot.

You can always just increase the liability on your current carrier.