California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts.

@Cindy SimcoxI also would recommend allowing the dogs (breed restrictive) and make them pay for it.

You could try some small local lenders who might be more flexible.Commcercial lenders will lend to LLC, you could see what options who have there.Some hard money lenders will also do cash out refi you can check into that, once again they will lend to LLC as well.The cost of money on commercial and HML will be more, however they will not be as restrictive as conventional.

@Maxwell Fontaine is absolutely correct, many HOA's will restrict or ban renters 

I want to sell it, but if I sell, I lose 75% of the equity per the covenant, the sale price is set by the trust, the trust has 90 days to try and get an Income-restricted buyer before it goes on open market, and I still bear all the costs (including a required appraisal before listing).

When A and B died, both of their Tenancy in Common interests should have probated to X and Y via their Will or State law (Unless restricted by contract or agreement between A,B, and C).

If you're buying a property with existing tenants, the security deposit would usually transfer over to and would reduce the funds required to close (check with your state and/or city in case there are restrictions).Most likely your lender would still require proof of funds to close, in order to approve the loan, then the actual amount wired in could be a little less.

What is a good idea now could be a BAD idea later (i.e. what if AirBNB is restricted by ordinance where you are and you can no longer rent that way.) 

These cities are much more likely to enforce bans or heavy restrictions on STR in the near future.

However, there is city water and I should probably see if there would be any restrictions on that.