It sounds to me like you've found value in the relationship enough to workout an offer that compensates everyone and doesn't leave you feeling in a weird spot.

Do a FNMA/FHLMC cashout refi up to a loan amount that leaves your monthly cashflow at an amount you are comfortable with. 

Quote from @Eric Mcginn: Long time BRRRer here, planning on leaving my W2 soon to pursue flips (and raise my babies)   Ive read the BP book on flipping.

But wants to leave immediate family in the main home on the property.The other option is, after a few years then rent out the garage and room while still having the family live in the main home.

. • The property owner has directed the unauthorized person to leave the property. • The unauthorized person or persons are not current or former tenants pursuant to a written or oral rental agreement authorized by the property owner. • The unauthorized person or persons are not immediate family members of the property owner. • There is no pending litigation related to the real property between the property owner and any known unauthorized person. 

When you are willing to cover your mouth with a handkerchief and step over land mines to see if the layout works for a LTR you know you're a real estate investor 😁 lolI've seen it all and smelt it all.Just haven't found a dead person yet in a property heheFunny thing is, having travelled a lotSome cultures consider animalistic smells attractive.Even aphrodisiacs.Personally, I love me some niche perfumes and have always bought the heavy Middle Eastern Oud scents.Repulsive when first applied but give it a few minutes and it blends into the skin making it sweet, sour and woody lolMaybe cat piss after some time smelling it would also blend in with our olfactory senses like it does with the other cultures hehehehe 🙈   

They are either going to be financially strapped or leave the area, or both.

It does not matter whether you are starting a real estate business, restaurant, car wash, or amazon commerce business - the lender will first look at you and your partner and how much skin you have in the game, your experience and the risk of the loan not getting paid. 

And many times the owner still has to end up fixing the issue when the tenant leaves. 

Without knowing your age, I like the idea of pushing additional savings into good, no load index funds (I like Vanguard's S&P index but there are plenty of others) through a Roth if you're young enough, leave the rental portfolio as is and pay the debt down to nothing, since you're not inclined to really work at growing that end of it.