Personally, I would bite the bullet and give the increase only bc of the use of the space.

Potential problem with the property: Seller realtor mentioned that buyer is required to obtain a Temp CO before closing and from what I understood, I think the reason a temp CO is required because he tampered with the existing CO by illegally constructing living spaces in the attic and the basement.

Kids can share the bathroom, parents pay for the space, parents get to keep their space.

No rental income produced but I can probably find one with enough space to build an ADU.Duplex - Immediate rental income.

I ran my numbers and 950k$ is the value I get once the property is fixed up and the vacant space is filled.

@Isaac Bazek-Buy, Rehab, Rent, Refinance, Repeat by David Greene (RE)-Real Estate Investing Gone Bad by Phil Pustejovsky (RE)-Investing in Real Estate by Gary Eldred (RE)-Quit Like a Millionaire by Kristy Shen (FI)-Playing with FIRE by Scott Rieckens (FI)-I Will Teach You to be Rich by Ramit Sethi (FI)-The One Thing by Gary Keller (Inspiration)-Am I Being Too Subtle by Sam Zell (Bio)-Shoe Dog by Phil Knight (Bio)-The Big Short by Michael Lewis (Business)-Liar's Poker by Michael Lewis (Business)

In addition, you can add a JADU from existing space but the jurisdiction can require an owner occupancy requirement (and every jurisdiction that I am aware of does require owner occupancy but I suspect the state will change this rule within a year).There are many companies that service San Diego that specialize in ADUs. 

The overage came from spending more on flooring (bought LVP), Plumbing drain issue, added 2 parking spaces, and redid the roof.

Renting out 7 bedrooms, you'd need at LEAST 7 parking spaces.

I came from the single family space, and after a horrible eviction from my turn-key rental which cost me a $10,000 education, I'm happy to scale up where the professionals play--professional GP team and professional management and economies of scale.