If this is going to be a limited PARTNERSHIP (you references "we"), then you will have to have a partnership return completed separately and earlier (March 15th) and the numbers will be put on a K-1, which then will be put on your normal 1040 which will be due on April 15th. 

That shouldn’t be too hard either because the kitchen and bathroom are right next to each other only separated by a wall (would just need to figure out the hose bibs). 

The only way I thought I could protect myself better in this situation if I were to decide to move forward would be to cross collateralize by taking a first lien on a separate property of the borrower.

That is a great point as well, I have noticed there are a lot of Accountants/Bookkeepers out there that have no idea what they are doing with Real Estate and they think it is like other types of business, they charge based off those businesses and find out they have to do more work and Real Estate needs more details and separate reporting and they do the bare minimum which ends with an investor having to pay someone like me to clean up everything and get them back on track.

A comprehensive investment partner can help you navigate these considerations and make the most of your investment.If you choose to work with a company that offers a full range of services, you’ll benefit from a streamlined process without the need to assemble and manage a team of separate service providers yourself.

Business or rental SPACE that is separate from the living area affects your gain/loss calculations.  

Saves me from having to transfer any amounts that add up into a separate interest earning account. 

You can either clearly list the 6% state sales tax and the 6% county tax separately in your rental agreement or invoice.

You probably want to keep the management company separate from the rental properties.

I think it's important to start with this - is your 250k debt what you owe in principal on the mortgage on your home or is this separate debt (credit cards, cars, medical, student, etc)?