A quick disclaimer, this potential tenant, we'll call Rose, has other issues with her application that will cause me to not accept her but i'm posing this question to gain some knowledge and opinion. 

The fact that you are living in one might pose some challenges.

I want to still only live on her income which is 38k and save my engineer salary for the next 4 plex.The morgage will probably be around 800 to 900 and taxes lime 500.Each unit will probably rent for 700 to 800 a month living in one that will give us an extra 2100 to 2400 for paying the morgage and maintaining the property.Should we go for it?

Discuss this with your attorney and CPA.The yearly cost of maintaining a registered agent.

City of Lakewood also has frontage and lot size requirements that are sometimes hard to maintain when doing a split. 

I have a full month's security deposit, and they maintain the house well, so we're not talking about a crazy turnover. 

I would also recommend a local property management who is familiar with marketing and booking so that they can ensure your property is rented and maintained as much as possible. 

I would definitely raise the rent.The concerns I would have are: people that go to Hotels dont clean up after themselves so who would maintain the property?

It just shows an utter disdain for you and your business, and frankly a lack of appreciation for the effort you made to provide a well-maintained home at a reasonable price for he and his family.If he had responded more diplomatically, explaining he did not cause the damage and if he generally took care of the unit and was not a problem tenant, I might have been more inclined to work something out.  

These items dont appear to pose a health or safety violation.