A yearly rent increase is written into the Lease Option so the amount I get increases each yearf.

Can I increase the rent since its 2 extra people in my property?

Earlier this year, they successfully renegotiated the lease with an increase.

The limit increases the more units the property has (up to 4).

I think the insurance plan I can rely on for the pension increases my ability to leverage myself without worrying about losing everything as much.

If you could do that and tremendously increase your equity, raise rents you may be able to improve your cashflow and then take out some of the equity and go invest it elsewhere.It seems like you are sitting on a huge opportunity to develop some equity, just have to look at all the scenarios and see where you come out best.If you sell, while you may get some walking money and a nice profit, you are likely leaving a lot on the table for the new owner to capitalize on. 

It's having the mentality using leverage to increase the income, which will than accelerate the debt payoff of income producing assets all the more faster.

I would also add a 2% increase for expenses and rent year-over-year for a more accurate picture of future finances.

If the rent is already $400 over the median value and the property would require a lot of work to rent to a new tenant, you are not going to be able to get back your renovation costs in small rent increases for years.

Less peace of mind due to increased debt, but trade off is better use of OPM.I will say we are leaning to taking out the line of credit for the pros mentioned above, but excited to hear your perspectives.