Maybe concrete single-family 1-4 units depending on the price point and cash flow.Also there is no real MLS in Puerto Rico you need to find an agent for each area you want to look at.

At that time we could renovate the ground floor apartment and potentially turn it into (2) apartments for a total of (5).My questions come down to how do we deal with the existing 40k mortgage, whether we can make it work so her parents aren't paying much in rent, if anything at all, and whether or not we set up any legal entity, like a trust to help the legal situation of paying off her sister down the road. 

However, if your local market has low returns (high prices, low rent yields), expanding to an out-of-state market with better cash flow might make sense.

@Emily Gowen so as you pointed out you would not have to do a 1031 exchange on your current home to avoid the capital gains tax and coupled with what Dave Foster pointed out I think, speaking from experience you would have a high likelihood of success. 

But if you're comfortable with rougher areas, then you can definitely find properties at lower prices.

If anyone tells you that you can get 15% cash-on-cash it's either a scam or ultra high risk. 

Look for properties with high cash flow potential, good condition, and room for improvement, such as value-add opportunities.

The owner said he would sell but at a very high price.

Purchase price: $274,900 Cash invested: $100,000 Brick ranch in Brookwood school district in Georgia.

Purchase price: $145,000 Cash invested: $60,000 Finding a move-in-ready home that offers modern upgrades and country charm can be challenging—but this fully renovated 4-5 bedroom, 2-bathroom ranch is the perfect solution.