As you alluded to, sometimes a passive note investment purchased for monthly payments “goes south”, and becomes an active participation investment, with plenty of additional capital required for legal fees, forced place insurance, and property taxes.  

If you are able to add an additional full bath, it sets you apart in the market big time! 

I agree with the others here that say you need to have some skin in the game, if you are going to live there yourself, get an FHA loan rather than owner financing, you can get a 3.5% down loan, personally I do not love these as they require  PMI which is an additional expense, and you also need  bring additional funds for closing at least for taxes, title, attorney and transfer fees . borrowing from anyone else for the down payment, to include a personal loan from the bank is not a good idea, those again will be higher int. rate.

In addition, you would need enough working capital to pay for insurance (which will be going up a LOT in Los Angeles) and to pay for property taxes.Don't buy this unless you have substantial resources and a cash cushion to keep yourself safe.

If we waited 12 months and got up to 80% occupancy would have netted an additional $500,000.  

I pull permits for removal of load bearing walls, addition of bathrooms or bedrooms, addition of footage.

Texas has additional laws against these options.

If they’re underfunded, you could get hit with special assessments.Not sure about the exact contract with the tenants, but I assume if there is any additional assessment, it would be tenants’ responsibility.Since you want to stay local and focus on cash flow, commercial makes sense, but have you considered industrial or flex space? 

Additionally, depreciation recapture (taxed up to 25%) still applies upon sale.Option B: Stay Two More Years and SellSince you rented the home for 8 of the last 22 years, after two more years as a primary residence, you would qualify for a 14/22 (63.64%) prorated portion of the $500K capital gains exclusion ($318,180).

Moderator, we have no financial relationship with any guru :B ] after we canceled promptly there were no additional billings either time.