The city delayed us on the permit a little but we have started renovations and no issues with the contractor.

Medicaid issued AL allows for housing, insurance, guardian and attorney fees if any, and a PNA, and community spousal allocation if applicable.  

I feel like there is a way to do this right, not just a verbal agreement but something that is legally binding where you can evict them if you run into issues- but it is a grey area since they'll be renting out a "room" and not the whole house.

When I do a Quitclaim - the state would show the LLC while the title would be on my name - does that cause an issue ?

The issue I have is that I have some credit card debt thats holding me back making it very hard to save for capital for a down payment.

Unless it can be easily obtained later, getting it is the issue.

and hey if its not enforceable it was still worth a try as long as we have a severability clause in the lease so it doesnt cause any problem if that section is thrown outagain, hope your tenant issue gets resolved...its so frustrating that they are allowed to do this to us. 

"Paying yourself a bonus" sounds suspiciously like you're working within a C-Corporation and that may be your first issue right there due to all the inherent issues involved in a C-Corporation with double taxation, etc.

A property must be appraised before a loan is issued because the lender is likely basing the loan off of the value of the property.  

Location isn't really an issue since I'd hire a property manager.I want to start browsing deals and learn how to identify a good deal.