How should I improve my current rental property business structure?

[Dennis C.]

I live in Phoenix, AZ and was able to score a great deal on a foreclosure home for my primary residence back in 2009 as a result of the housing market bubble burst a few years earlier.  What the market bust also meant is the 2 bedroom + 1 bath townhouse that I purchased in 1998 and was living in at the time was majorly underwater on its value.  Not wanting to take a complete bath on the sale of the townhouse, I decided to hold onto this property and make it a rental unit and hold it until the market values rebounded.  I've been lucky over the past 6 years and have only had to have 2 tenants, both were great and took good care of my property during their stay and the unit has only been vacant for ~5 weeks in 6+ years.

Now I find myself rethinking the idea of selling this unit and am actually entertaining the idea of purchasing another rental property to create passive income for myself in the coming years.  I've been reading books, watching YouTube videos, and visiting forums like BP to create a plan on how I should go about this.

I've been introduced to so many great ideas and concepts I never thought of before, but I have to admit, my head is spinning a bit.  Here's what I am initially thinking to do:

1. Create an LLC for asset protection and tax reduction. Right now I am leaning towards the default tax status for this, but wondering if I should I consider setting up the tax status as S-Corp instead. The whole paying yourself a "reasonable salary" aspect of the S-Corp seems to go against my goal of tax reduction.

2. Take out a HELOAN (not a fan on the HELOC variable rates) on my primary residence and pay off the remaining balance on my rental property mortgage. I should be able to get a lower APR% on the HELOAN than I currently have on the mortgage, which would cut my remaining payment schedule from 6 years, to just under 5 years paying the same $ amount I am now each month.

3. Transfer my now paid-off townhouse to my LLC. Not 100% clear on the process for this, nor the tax implications in doing so (e.g. depreciation recovery, gift tax, etc.).

4. Take out a loan against the townhouse and purchase another small rental property (e.g. condo, townhouse) through auction or similar.

5. In 5 years, once the HELOAN is paid off, take out another loan against my primary residence to purchase a 3rd property.

For those of you with experience in this arena, what are the flaws in my "perfect world" plan?  I'm sure there are several so I welcome any constructive advice.  Even tough I've had this rental property for 6+ years, I'm a total newbie to the concept of real estate investment, so be kind.  Thanks.