Convert the property you are living in now to your second rental, and buy a new home for yourself. 

She prefers they sell the house right now, as is, and live off their profit.

Yes...as long as your living room is really nice....

I renovated the home while 3 of my friends lived with me and paid my mortgage.

I'm assuming that this situation wouldn't pass inspection, but one could argue that all the spaces the guests have access to (i.e. bedroom, bathroom) are safe and habitable + the guests wouldn't be exposed to the kitchen.Also, do the city inspectors inspect other parts of the home the guests won't access (i.e. inspectors check the basement for water infiltration even though no guests would ever be living or even going down there). 

I lived in Austin for a couple years.

Quote from @Kaleb Garrett: In the town my parents live in (small town in East Tennessee) there is a small solar farm.

Easy living, comfortable furniture.

I live about 20-25 minutes away in Bloomfield Township (Lake Geneva mailing address) and have a rental in Delavan. 

We paid off our primary home last year and have been slowly getting the courage to jump into the investing market where we live in the Pacific Northwest.