That way you can partition within the units and change a 10 x 25 to two smaller units if demand dictates.

You raise/lower rents when the market dictates that your rent should be higher/lower.

 If your zoning dictates Two family housing then changing it to a three or four unit will require a zoning variance from your zoning board.

Tell them they are responsible for the rent until you find a suitable replacement tenant.Unless your lease or state laws dictate another course this is what I would do.

The agreement would have dictated how you guys allocate the rental items, If you dont have a partnership agreement, you can just co-own the property, but with your situation, I feel like the partnership is created as just one of the partner is on the loan which created a basis for you but not for other partners. 

Never allow fear to dictated how you operate your business.

Your policy coverage will be the only thing dictating if you will get $ for a complete replacement or an Actual Cash Value payment.  

I never imagined someone feeling so entitled that they find it their right to dictate who gets the privilege to live next to them, but you learn something new everyday. 

@Ethan Board a lot of this will be dictated by the housing stock in your area and by your families needs.

For I am not looking for their approval or allowing them to dictate what deals I can or cannot do under my own LLC.