But I don't know if 1. there's a specific process we have to go through with the city for it to be recognized as a duplex down and 2. we plan to say in the listing that the tenants cannot use the basement as living space, just as rec space/office/etc, but I don't know if that's enough to cover me in the event of a lawsuit for example that there's a fire down there and someone sleeping down there gets hurt.

I don't lose any sleep at night knowing occupancy has taken a fall this year.

You can get a better return on that dollar by updating the roof.To paraphrase Morgen Housel; at the end of the day it really needs to pass the sleep test.

Just plan to keep expenses on a spreadsheet.  6) We got an umbrella insurance policy vs LLC - lots of forum threads on here about the differences and which one is best depending on situation.  7) An emergency fund is paying yourself, I don't sleep well whenever mine gets low.  8) For me, it would depend on your financial level, time to retirement, and/or if you have income you need to offset or not. 9) you need to figure out if selling with the up-to- $250,000 capital gains tax free for primary residence is better financially for you than renting as you'd be converting to a rental and potentially losing that tax advantage (takes a lot of monthly rents to equal that benefit), and talk to your accountant about the depreciation as I think they still value it as depreciated when you sell even if you forget to depreciate at tax time.   

It's an interesting dilemma, on the one hand my investing side, I run everything on a 2-5 year time frame absolutely no problem waiting for investments to work over the long-term with no lost sleep.

As they are Brad trained, I have a "sleep at night" confidence. 

What if you have an office that could convert to sleeping space? 

It sleeps 8.My 5 bed/5 bath house, also with heated pool, and across A1A from the beach can sleep up to 18. 

I was going to sleep but then thought to check basement.

Whatever fits your model and you can sleep with is the correct answer.