We are able to save about $100K per year so putting down $85K is possible for us with our current situation. 

I believe we are making the right choice by doing legal/fully permitted ADU's.

I'm worried that this equity we are sitting on is not being put to its best use, and am wondering what someone in this situation would do? 

Fortunately, we are currently in escrow to sell it.

Since we are considering a 4 bedroom house, let's compare it to a 2 bedroom 2 bath duplex each side.  

Quote from @Edgar Duarte: hi allI would love to get some perspective from your expertise, we have a property that we would have to sell in 2025 to avoid paying taxes on the capital gains, we believe we rcan sell it for $700K and get an equity of almost $500K after paying the mortgage balance, if we invest all of it option in index funds at 7% rate (standard com growth calculator), or in more rental properties as we are all here for, I can get the equity of around $900K.option B would be keep paying the house at 2.3% int rate while we have it in AirBnB and maybe sell it in 10 years for $900K, knowing that we would be paying taxes but it is not that bad still. or we can 1031 at that point?

Keep in mind we are talking ten's of billions in real estate.

It is now known as the Frontier County Enterprise, but previous iterations included the Hi-Line Enterprise, and before that the Eustis News.

We are still in a real estate expansion phase.  

I work in similar facilities and there is a lot of wear and tear on the property.