The property overall is in very good condition and it is in San Jose, CA.

Not knowing if there are tenants or if it is empty, the condition, if there are any code violations existing, if you are assuming a company name that holds the property and if so, the standing of that entity as well as contingent liabilities, what kind of municipal requirements there could be like registration as a landlord in that jurisdiction, or of any other details, I really can't tell you what you need to do first.

What's the condition of the HVAC?

If you leave the property by the lease expiration date AND leave the property clean and in as good condition as you found it I will not charge rent for Jan. and I will return the security deposit in full" I made the offer contingent on them responding to my message. 

If the house is in bad condition can I receive a 403k loan and use it to help finance a portion of the conversion or would I basically have to use it solely on fixing the structure as a 1 family unit? 

The house needs to be in the condition it was when you did the initial viewing (or better). 

.- What is the current condition of the property? 

Parking, noise, use of utilities, density, beauty/style, are only a few of the considerations when a conditional use permit or zoning variance is granted.  

My hope is that you are perhaps an overwhelmed landlord who might be looking to offload a headache.Someone who is getting close to being in a bad financial situation because of Covid or the rising cost of living.Someone who has lost all the equity in their home/is worried that it is in such poor condition that you won't be able to get any value out of it.If so, I’ve been doing a lot of research and I think we can help each other out.My goal is that by searching off-market, I will be able to find something within my price range and because the market is so high, you might be able to get more value for your home than you would normally.If this sounds like something that you would be interested in, I would love to hear from you!

You need to check your state laws, but it sounds like you've done the right thing so far by giving notice, attempting to communicate, documenting the condition left, etc.The tenant is unlikely to sue you for anything.