California's median home price in December was $470,000, which equates to a property tax of at least $4700.

It's a supply demand equation right now.

I think a more accurate equation for figuring out cash flow is rent - 30%(vacancy, maint, and capex) - PITI = long term average cash flow.Also - ignore Zillows estimation. 

However, as Chris stated, there are a lot of other variables that go into this equation. 

@Dave Foster - Thank you.The more I look into it the more risk and complexity it seems to add on my side of the equation with no significant benefit (as opposed to just selling outright). 

A typical semester is 15 weeks, so that means the typical college student will have 15 * 15 = 225 class hours per semester.Don't forget that a typical school year encompasses two semester, so that's 2 * 225 = 450 class hours per year.Going back to our $20,000/year tuition costs, that's an average of $20,000 / 450 = $44 per hour for college in this country.If you're paying $50,000 for training/mentoring, you would need to be getting over 1100 hours of face-time with you teacher for it to equate to what you'd be getting in college. 

If the option is picked up I would then make the additional 3k from the locked in price, the original seller would have 100k loan taken over by the new lease buyer and I'm removed from the equation all together correct?  

Lots of towns don't like multi-families or only allow them in neighborhoods where you may not want to live.There are a lot of pieces in this equation.

They have also done some improvements.If you take refinancing, and leveraging it out of the equation, should I hold on to something that won't pay me $120k for almost 15 years?

You've obviously never been on the Contractor side of the equation.