We did notice some water damage in the front of the house but was told the roof is in good condition.

If one system malfunctions, you'll be out of the water.

Also utilities and sitework should be less as you do not need to bring in two electrical services, water services and run two sewer services and connection fees.

Is it not problem that they do not have enough water. 

Roll it into the rent with a lease clause that anything over $X is split 50/50 between both tenants and you don't care who uses more water...In short, spend some money and make it a legal duplex or at least make it two separate units.

Upgrades/repairs include:flooring (tile and carpet, entire house), painting (entire house), complete kitchen renovation with new appliances, cabinets, sink, lightingcomplete bathroom renovationsupgrade/replace ACupgrade/replace existing hot tub  upgrade/replace furniture/bedsupgrade/replace old pier with newadd new kayaks, paddle boards, and bikesI am thinking anything that is removable (furniture, appliances, water toys, bikes, pier, etc) could qualify as an asset for the LLC and thus be used as a tax expense for the LLC.  

How do I handle the water being in my name as well?

> Military husband/wife buy new home, divorce, stop paying note and hoa> Husband is erroneously removed from title by tax appraiser, HOA forecloses on wife, I buy home at auction> Now I am on title, wife and husband on note, bank cannot foreclose because husband is protected by SCRA > (more on this in the above post, but husband does not want the house back)A while after moving in I discovered water damage inside a wall where rain has been getting in due to needing a new roof. 

We are in uncharted waters.

We have had two different contractors try to fix using various types of cement/epoxy while digging up outside area and they can not seem to get it right but have decreased the water a bit.