For both short- and mid-term investors, the market's diversity and relatively lower entry costs make it an attractive option.FYI - Philadelphia has a tenant-friendly legal environment, which can present certain challenges for landlords

4) Legal Options: who told you that you can't sue the LLC owner?

You want to get her out as soon as you can with whatever legal means necessary or it will never end and everyone else will move out.

My intent was to use the local reputable contractor (think of the guys sponsoring sports).

I would suggest to check with your local laws first.Most likely you will need permit ( I guess you can get away without, obviously not suggesting that :D)) but possible) , also check your zoning.If not possible to create separate unit legally, I suggest not putting an oven in the basement, and rent it without, or live in it yourself

I dont want to deal with legal issues down the road.

Specifically, we'd like to understand:Liability Protection: How does each state's legal framework and case law compare in protecting our personal assets from liabilities related to the property?

Construction skills, loan skills, financing skills, legal understanding, real estate transaction skills, etc all greatly help.Personally I wouldn't deal with someone that has no money, lacks experience, or some kind of resources. 

Maybe this would also make it worthwhile to jump through the city hoops to make the basement a legal unit.Then you could maybe put a LTR in the basement who could assist with the STR in the main area.

@Jerry ZhangYou cannotYou can give a personal guarantee but then you would have to have other assets.What could happen and we have seen many times is they go into default and the 20% equity cushion goes out the window due to late fees, accrued interest and legal costs.