I like the idea of growing my business and building wealth, leaving the current corporate scene faster with a franchise.

I think the better option is to leave California but I understand you may have a different opinion.Buying in California is really expensive.

roof and ac are a must for sure, second question is since we are gonna live there that means one family will have to leave and we have to decide which side we want so how do we approach this in the most delicate manner?

It appears the relative has been living in the house for several years, without any type of lease, never paying rent and has no intention of ever leaving. 

Like I've said, if it just means I leave things as is and don't get to use the refi amount to buy more houses instead, then there were way more troublesome ways I could've learned this lesson about what refis cost.

Even non-recourse debt still leaves the asset at risk if you're dealing with an inexperienced or unknown syndicator/sponsor. 

If your carpet is still serviceable, leave it alone!

The other 2 tenants have indicated they will be leaving when their lease is up and they both smoke.

That leaves you with a very small tenant pool.To take a step back, why are you planning to sell and move to a more expensive house?

If it was a case where a long term tenant was leaving piles of trash on the property (yes had this happen to me once) to attract pests that is a different story.