It is extremely important that you know the basics of real estate as agents learn for their examinations with the exception of state real estate commission related materials.70%, I'm sure after being here for years on this site, of the questions asked on BP have the answer in the basics of a formal education in RE.Can you, as a newbie (or more most here with years in doing what they do) imagine being able to give an intelligent answer to 70% of all the questions asked on this site after receiving about 2 weeks of training?

You could expand it as you mentioned either sooner or later, and if a developer sees potential then there is likely profit to be made in addition to practicality by expanding the footprint if done intelligently and cost effectively.4)You keep the house as a rental and purchase your next larger home.

The BlackRocks of the world artificially inflated the market. 

And let me tell you about the opinions some of us here in the midwest have for the intelligence of the California Money.  

(wink wink)I look forward to meeting some intelligent and awesome people here....godspeed and see you soon.Maxj124"Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."

Here's my observation.The more educated/intelligent the tenants are the easier they are to deal with. 

You have objectively looked at your situation, but what you missed as positives are...time, which you have...energy, clearly available...desire...intelligence...realism.  

If you do not do this, the years after rehab will reflect an artificially high return and 8 to 10 years later you will project an artificially low return. 

That's quite a large decrease especially considering that $1 in 1982 would have the purchasing power of about $3 in today's market.One explanation could be that Interest rates were artificially low for a long time (until recently) which may have diminished the need for seller financing. 

A Catch-22 rental is an under-maintained property being rented to the poor for artificially low rent rates where our poor residents can live without subsidy, but at the cost of their health.