If I were to only allow 2 occupants per bedroom, that isn't violating any Fair Housing Laws, is it?  

Lay down the law and never compromise on your decisions and actions.

There has been an empty lot, next to my father in law’s house that has been in distressed for years.

The “SJR 60” went into effect January 1, 2018 and while we could spend all day on the language there were 3 really important changes to Texas Home Equity Laws because of this legislation passing.

If you're willing to put some work in or willing to go further out from downtown, you can occasionally find something for under $300k.What's great about Colorado Springs -- say, versus Denver -- is that the laws surrounding Airbnb and short-term rentals are wide-open, so you could do an Airbnb in one of the other units. 

Check your local laws!

Obviously I prefer not to use all $700k on a 2nd house, if I don't have to, as it will be a good base for other investments or kids' 529 savings.For a $1.5m home, property tax is already $1500 per month, and ~$2k in mortgage interest after 2018 tax laws' deduction - I will be taking the $24k MFJ standard deduction if I don't buy a 2nd home

Raymond, with a negative cash flow and Californians pro tenant laws I would strongly consider selling your house in CA.

If not see what your local laws say about recovering metered water costs.

My mother in law manages a few rentals in that area and would be able to help us manage ours.