In the big scheme of things, on a typical property (nothing crazy like major hillside work, septic, etc.) you can screw up pretty bad and if you hold on to the property long enough, it will likely work itself out.

Not knowing the final plan, I'm not sure if 1031 is a good option.

They are considering their options, looking at the market, probably starting to realize market rents. 

One could either use the first option to earn more money or counterbalance housing expenses with it.

Typically if people are renting a house (ie not rooms in a house), they are responsible for taking care of the yard.

If I house hack, budget expands due to financing upsides with an fha or new 5% option with Fannie Mae.

Not sure if I can refi OUT of my retirement vehicle, but if I can, that would definitely be an option. 

With rent control laws in Los Angeles, as I see it, options to increase rents consist of:a) Cash for keys.

We are looking into buying with creative options such as using a wholesaler, putting more money down, and house hacking.

I'd also restate to them that you are not going to involve yourself directly since that is their role, but that from her email it sounds like allowing her to early terminate with no penalty IF it is returned in good condition may be the best option.