I ran into a few issues with lenders.

I had a similr issue a few years ago with a property in Cleveland where my property manager hit the same roadblock.

The impact of not having F/f financing is large (>10%) if the appraiser recognizes this potential issue.  

And it's not only homes, it's all the infrastructure a city needs.On the insurance issue, I think this may be the end of national carriers.

However if you are doing it with a conventional loan, you will definitely run into underwriting issues if that is noted on the appraisal. 

RESOLVE this issue NOW and make a clean break. 

What issues would there be if I put MY NC house in the LLC that has his name and my name on it?

Those stilled cashflowed mostly due to insanely low interest rates.3) Investors started chasing Class C rentals in 2022 when Class B rental prices AND higher mortgage rates didn't allow cashflow at purchase.4) Investors are now chasing Section 8 tenants as the cure-all for Class C tenant performance issues, so their Class C properties ACTUALLY cashflow.

I doubt if you'll have any issue with your hold period since it is all about your intent anyway.

Since you’re considering converting the upper unit into a short-term rental, you may also want to implement strict rules around smoking or strong odors in your house rules to avoid future issues.