[supafamous]

Would the current house be big enough to host if they kicked the tenants out? If so, I'd just do that and do a nice little renovation to make it more family friendly.

If it isn't big enough I'd knock it down and build a new house on it ASAP - the rules are changing on detached houses and by end of year or early next year you'll only be able to build 2400sf on a standard lot versus 2700 right now. Make it a passive house and you're pushing 3000sf, put in an elevator to deal with the mobility issues they'll run across as they get older and they've got a dream house. Figure $1-1.2m for a new build and they don't have to move away from their current neighbourhood.

To pay for the new build take a mortgage out on the inherited house while you rent it out to pay that mortgage so no property transfer tax or agent fees from selling and you can write off the mortgage interest.