As noted above, PGW has rebates for converting to gas and even better rebates for multifamily properties! 

If that scenario played out, you might be underwater (in the sense that the property is now worth less than what is remaining on the note)

-Also note, I'm financially independent while living in this cheap house or any paid off property really, and I can pay this house off any time (including most of my other rentals).So what to do?

Assuming you are getting cash out, since you stated as such in your first paragraph, I think this is a no brainer...once you look at 2 numbers:1 - Added cost out of pocket (higher closing costs) for lower payments = $21,0002 - Added cash out with lower payment option = $3,0003 - Total added cost (cash out of pocket) for lower pmt option = $18,000      Note:  This is money you have to recover before you are making any profit...so the added cash flow isn't a plus until this money is recovered.4 - Monthly savings (added cash flow) = $1655 - Number of months to added cost recovery = 109...or 9+ years. 

Fully agree with everything he has said, although I would note that there has been a commercial tenant -- the Tin Fish -- at the pier for several years now.Also, the Sand Castle Competition is still a big event.  

You have to make sure he pays his note.

What are the chances of the first asking for payment in full from the due on sale clause in the note?

@Annie Schrock Have you and your friend considered private note-lending with an experienced team?

You just have to take note and remember who did it, and continue to focus on yourself.

I have had a few interesting conversations with 2-3 people in my circle of influence that want to participate in REI, specifically my recent success, but they are both gun-shy in committing to any specific "complex" real estate deal, and have sub-$5,000 amounts they are wanting to commit.Without getting too much into the minutia of their mindsets and arguments, it is important to note that they are willing to give a much smaller amount of money for advertising and, in return, are expecting a faster, albeit, higher risk return through wholesale deals obtained during that time frame.My actual question for you is: have you ever structured any kind of private funding "deal" that officially goes towards your marketing in exchange for a piece of the net profits for (insert time period)?