Ben, So what I am hearing you saying is you had a property in LA that was worth $755,000 and after the sale of that property, you cleared $366,000 which you turned and bought a property in Houston for $400,000 by using the $366,000 and adding $34,000 more in personal funds. am I correct in my understanding?

In hind site I would have performed underwriting for a tear down and compared the two but suspect I would have gone with same decision because my underwriting on rehab was so off.  

Under the FHA rejecting a person for the ESA dog is a form of discrimination against those with disabilities.Your post suggests that this person has passed all your screening criteria except for the ESA dog.

Personally, I'd never buy the biggest house, or the most expensive house on the street.

Quote from @David Eyal: This is actually very simple: don't get involved in personal issues.You offer them a renewal.

you mention the person who is complaining is now and living in an efficiency unit (to me that has everything in it-ie fridge, stove). 

I have locked up one deal off the application and have offered in person on 2-3 other deals.

I will say that if you get some ducks in a row, things like a good cleaner, handy person etc, you could manage from farther away if you find a deal or area you are interested in.

We took this approach because even though the house is an STR it is also one we want to use as a family a couple times per year, and we feel we have our own personality as hosts, so we were particular about what we wanted. 

I  would look at your town regulations and see also if they have any unrelated persons ordinances and what they say about boarding houses.