Purchase advice / Financial evaluation - 1950s house with attractive plot

Certainly someday, but in the short term I would focus the renovations on what is necessary and what can save money. In a few years, when rising salaries allow more leeway, a new kitchen will certainly be possible *g*

Hopefully that will also work out for you, but I wouldn’t rely on it.
A “well-maintained” house built in 1950 is one big piggy bank and a loan of €500,000 also has to be paid off first. Then possibly another renovation loan, heating costs will certainly not be extremely low, additional costs arise with the house and large plot, after 25 years the first renovations become necessary, the children may want to study, the statutory pension is getting lower and lower, which is why private provision is desired… there is always something!
I wouldn’t count on steadily rising salaries, the current collective wage increases barely offset inflation, the economic and other prospects (energy crisis, costs of global warming, war costs, pandemic costs) are also not exactly bright, unfortunately :-(
In your position, I would only count on what you definitely have and what can happen in the worst case. If you can manage with that for the next 20 years, it’s fine; if not, then not.
Is there no suitable house with a smaller plot in the area? Then you would have a budget for reasonable renovation and no old owners as a dead weight (or upstairs).

Certainly at some point, but in the short term I would focus the renovations on the necessary and on what can save money. In a few years, when rising salaries provide more leeway, it's certainly the right point, but in the discussion we found out that there would be room for negotiation both on the amount and, that I would also make it a condition, and the duration of the rent will not be 10 years either.
Definitely, one must get along excellently with the tenants. If that is not the case, we will not consider it further (exclusion criterion).
That is already good, but please keep in mind that as a long-term owner, it is usually not easy to hand over one’s house to strangers.
If you are then sitting as a tenant and retiree on the upper floor, you tend to critically observe the new young owner to see if he also appreciates everything properly. Changes tend to be viewed rather negatively and one does not understand that the good old [insert any other structural component!] is being thrown out even though it is still in great shape and has worked perfectly for 40 years ;-)

How much can an S-Bahn connection be worth? So much that you buy an old shack for three-quarters of a million and even finance 500k+, and then the former owners upstairs on top of that—never ever! That can’t be right, can it? Have you ever calculated how much interest you’ll pay over the 30 years? By the time you finish paying, you can completely renovate the place again.

Forget the S-Bahn, with that much equity you can get something really better, cheaper, and nicer... without tenants. And you can even buy a car with it, then you have your own private S-Bahn.

Forget about getting along nicely. As soon as everything is signed, everyone wants to have their own way and do their own thing. You’re practically strangers, what could possibly come out of that? You’ll annoy each other and gossip about each other in silence.

I don’t understand how anyone wants to shape their life financially and privately like this... what do you get from it? A nice view in the morning and a garden. You can get that elsewhere too.

Don't understand how someone wants to organize their life financially and privately like that

Especially in the Munich catchment area, such an S-Bahn connection is worth its weight in gold. Because you have the choice to rent a small house in Munich ==> I would guess from experience a starting point of €2,500 cold rent (new apartments already go for €25 per sqm + X). And then you pay exclusively to the landlord without building any assets yourself.

Don't understand how anyone wants to organize their life financially in Munich like that. : What do you think?

Forget about understanding perfectly. As soon as everything is signed, everyone wants to push their own agenda and do their own thing. You are practically strangers to each other, what is supposed to come out of that, you get on each other's nerves and gossip about each other in secret.

But you know that you can just evict the tenant in a two-family house without any reason? If the tenant acts up, there’s a termination notice the next morning. In such a situation, the subsequent renting out, at best, only with a higher rent, becomes just a formality.

The S-Bahn is really worth its weight in gold, especially when both are working and later, when the children are old enough to go to appointments on their own. In the long run, this saves the second car and a lot of chauffeur time for the parents. Besides, not everyone wants to live out in the sticks.

The sore point here is the former owner as a tenant on the upper floor; he will probably interfere everywhere (it might even be meant kindly, but do you want that?) and wants to use the garden and basement storage space together (laundry room jointly as well? You’d be running into each other all the time!), you just have to realistically picture it and ask yourself if you really want that with strangers!
Regarding the note on special termination rules in a two-family house: does he want a fixed-term rental contract? Does the special regulation apply then? And the question is whether you want to put yourself through that stress.
Usually, a longer phase of annoyances precedes this, and how well does it go down in the neighborhood if you evict the old-timers after buying and promising that they could stay as tenants?

The property is simply too large and expensive and the house too much in need of renovation for it to outweigh the negative points!

Personally, the ground floor would be too small for me for 15 years with 2 planned children, the ground floor shower bathroom looks very cramped, which is not comfortable in the long run with 3-4 people in a single-family house.

As I said... the big piece of land is the price driver. Is there a possibility that you only buy part of it and the owner sells the rest themselves? Saves you a lot of thousands in property transfer tax and notary fees...

Of course, there is the real risk that you have no influence anymore on who buys the remaining land. But you don’t have that in the new development area either...

PS:
And it's better for the owner too. Because selling the house + 600m² of land and 1,000m² of land separately as building land gets him more than selling house + 1,650m².