If not, you may need to increase the septic to handle two family, per your county health dept codes.

However this can result in extra fees hence increasing money to the City.  

@John Woodrich"Equity doesn't kill cash flow, equity increases cash flow."

Your expenses after taxes remain the same as well so you can save $160 per month (until your real estate property taxes and insurance increase). 

Does it make sense to increase my home debt to invest in other property???

Knowing that, if I did buy the property, I may slightly increase rents at renewal time.

. $100k under the county appraisal is not to low - just work with your numbers. you can put it on paper with 30 working days Due Diligence clause and option to increase it by another 21 days. 

For example, things like vacancy, no payment, rent increases, late fees are all going to affect the actual number.

Your overall cash flow will increase as well as your ROI and you will still have $1.6mm in equity.

Investors also assume that property prices rise and debt is paid down - another way of increasing overall equity over time which is not just a measure of prices.