Single mom with two kids. 

I'm not too sure about a Captains tax, for that I would refer you to your local seaman :)Kidding aside, yeah that's fine, assuming you meet the other requirements of Sec. 121 such as not having utilized the exclusion during the two-year period prior to the sale of the property in question, among others.

I would be careful not to be too aggressive/risky with little kids and taking a pay cut.

I recognize that we still need to look at this from the standpoint of our goals (long term rental with the goal to pass on to our kids) and that it make sense from a finance standpoint rental income. 

;'p Just kidding..

If you are planning on passing a ROTH to your kids, then it does not really make sense to make it a ROTH. 

We want our kids to be able to be close to our families, so ideally, we visit Oahu a few months every year.I spoke with a few realtors and it seems like the best investment would be the condo hotel as they are legal Airbnb/STR.

Status quo and anyone born after 2008 will not be buying a home until they are in their 40's if they are lucky and we will have a generation of renters or kids whose parents passed down a lot of $ to them.Which one do you think will happen?

A family (unmarried couple  , 2 kids and brother in law ) applied for my 4bdrm rental.

I think that it is a good long term investment with some serious upside, but don't kid yourself - your car (or your tenant's car) will likely get broken into at some point.