I’m thinking about selling one of my debt free rentals to pay off the loan of the new house – thus erasing the $3500/month loan payment.

I would be Uber pissed off if one of my neighbors started to use their house as a STR. 

AND try to find a market where you do not have to compete as much with 2nd home demand - a place where people go to vacation but is not top of mind for a rich guy's vacation home destination (ski town, lake house, etc.).If you are asking for the secret market that returns 20% cash on cash without any renovation or difficulty, that doesn't exist.

Being a first time home buyer and owner occupant I was able to put 5% down on a house hack property.

I just bought a house in los angles and can only afford the mortgage if I get roommates.

We still have the house and paid it off a few years ago.

The house hacking benefit.

We’re trying to buy the house next door.

We currently have a house in a stable market (not extreme pricing increases currently as some markets seem to have) in am area with military bases.

At least, if you advertise each room separately, you're placing people in a house who might not have otherwise found each other and can get a house more affordably than they would on their own.