So this requires some upfront planning. 

3) Remaining $5625 is reimbursed to me as home office expense.

How do you think the 2 relatives will feel about having their rent raised or being required to pay rent period?

2 are not cashflowing with the required expenses for vacancy at 10%, repairs at 10% and capital expenditures at 5%.

Your $80K HELOC can serve as the down payment, as most lenders require 20%-25% of total project costs upfront.

If the property does not require an extensive rehab and just needs cosmetic repairs then a standard landlord dwelling policy in most cases depending on the carrier.

Would you be better off selling and purchasing a less expensive property that would require less carry should it become vacant for some period of time?

It’s good to budget for unforeseen expenses.Regarding PMI, it’s worth discussing directly with your loan servicer since many lenders require holding the property for a period or reaching specific equity thresholds before removal.If market rents are $2,200–$2,500, hiring a property manager could help you optimize rent while taking the burden of tenant screening off your plate.

My experience has been that although I outline the requirements for tenancy in my properties, both brokers and PMs still send people who would qualify for most property owners but do not meet my outlined criteria; and then are SHOCKED when I reject them.  

There are dozens of check boxes, some of them matter, and Balance Sheet and capital accounts are now required.