You are not going to make anything on it, so you will not have to worry about capital gains. 

Since moving into another fixer-upper isn’t ideal right now, consider leveraging your $40K for a low-money-down investment, like house hacking a small multifamily or using creative financing (seller financing, subject-to, or partnerships) to avoid tying up all your capital.

This would hopefully maintain strong cashflow from the property will providing some capital to use for the next property acquisition. 

It can provide a very misleading valuation.Your appreciation numbers reflect just below 4% a year (I used 8 year hold) on both properties which is below national average for this period and below what neighborhoodscout depicts for Chicago 10 year average. https://www.neighborhoodscout.com/il/chicago/real-estateLooking at this from the outside, I am missing a lot of details such as your interest rate, is there a prop tax benefit for long holds (by the way look up prop 13 for CA at some point as it may play a role in your decision to purchase once you relocate to San Diego), the neighborhood, appreciation potential going forward, any emotional attachment, etc.  

Were you able to pull most or all of your capital out?

We do them, but like you we often get push-back from the capital-provider funds.

even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note3) any general advice to look out for on seller financing?

The big advantage is having the capital gains spread out over many years to avoid a huge tax bill.

In Ohio, some banks and credit unions are known for flexibility with mixed-use or investment properties include:Civista Bank - Known in Ohio for its flexibility with investment properties, they may have options for mixed-use financing.Liberty Home Mortgage - Offers a range of loan products, including commercial options that might suit your situation.Huntington National Bank - Has experience in commercial lending and may offer portfolio loans that allow combining the properties.Asking for a price adjustment for buying the single-family home in cash could be feasible, especially if the seller needs flexibility for the divorce settlement.

If you’re looking to capitalize on the market in 2025, here are the top 10 cities in the PNW that are yielding the best returns on investment:1.