Is there anything else I should consider when assessing this increased risk?

I own a SFH in Los Angeles and am thinking of making some upgrades-1) opening up a retaining wall that leads into the backyard and install a sliding glass door2) adding a 10x12 wood floating deckMy questions are:1) How would I calculate the increase in value for these upgrades?

If updating the interior or exterior will allow you to increase rent and get paid back in "x" number of months, I would do it.On the other hand if you have good solid tenants I wouldn't mess with anything.Since your grandfather had these for 20 years some of the tenants may be due for a rate increase without any improvments

I find it easier to put out rent increases for each person rather than trying to raise the whole rent for the house.

Can rents be increased? 

I believe the calulator was showing 6.85% increasing over time 

Just be aware that many people are using the same strategy and as a result the prices of small multifamily properties have dramatically increased over the last few years. 

Also, if you buy the property, your property taxes are going to increase because of the new, higher sale price, so go to the Property Appraiser's website and see what their MIL rate (usually a combination of both the county and city),  Finally, run your numbers through the BP Rental Property Calculator. 

The moment the pre-payment window is done, the investors chances of loss via refinance increase.

When the time for the Refi comes around on a 1-4 unit property, I was under the impression that the appraisal is not based on how much you have increased the rent during your hold but rather just the typical appraised values of other similar properties in the area (whether it be other 1-4 unit properties or single families in the area) and that the increasing of the rents while holding the property only comes into play when the asset is a 5+ unit property - is this correct?