If you have extra money that you haven't earmarked for additional RE I would do TSM index funds for a truly passive investment. 

@Mark Toweya couple things - from the seller's perspective, it means the seller doesn't have to wait the full 30 years to get the proceeds, and from the buyer's perspective, hopefully in that 5 years appreciation and maybe some updates have increased the value such that when you refinance you don't have to bring any additional cash.  

I won't go into all the details, but there always ends up being a significant problem in the documents I get or don't get, in negotiations, etc, and the trigger never gets pulled.For a variety reasons in addition to the above, including my wife's encouragement, I've decided to take a serious look at going the real estate route instead.

If it were us, we would keep the property and take out loans against it for investing in additional industrial property. 

This will additionally impress the seriousness of the issue.

In addition I am giving him freedom to explore (to a certain extent) on my dime.

Additionally, small loans like you're describing are not looked kindly upon by lenders because they're doing the same amount of work as they would on a $500k loan but for a fraction of the yield.

I've owned the house for few years and have spent a lot of time trying to design an addition to add value to the property, but the current floor plan is really not conducive to realizing a return on that investment (tiny living room, low ceiling basement, poorly placed basement stairs, etc.). 

In addition, as others suggest, guest damage insurance such as proper or safely would be good, for those bookings off Airbnb/vrbo where guest damage coverage isn’t available. 

I recently completed one on a multifamily property and found it to be a cost-effective approach.That said, there are a couple of additional factors to consider beyond the code differences between a garage conversion and new construction:Coastal Overlay Zones – If your property is in a coastal overlay, building a ground-up ADU may require Coastal Commission review, which can add time and complexity to the process.