Juan Pablo Murillo If you think you will go FHA, Conventional, FHA 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days.

Seasoned BPers have consistently advised against buying based on speculation that appreciation will occur.

Request the tenants leave, flip to 3 bedroom, and rent to new tenants at $986If I convert from  2 BR to a 3 BR, I've calculated a payback period of 2.3 years... here's the high-level of how I came to that number:Annual Opportunity Cost:3 BR vs 2 BR Rent = $2,790My Time (expect less needy tenants) = $1,183TOTAL OPPT COST= $3,973 <-- This is a favorable numberCost to get unit ready as 3 BRTotal to flip = $7,551 (includes paint, new floors, converting basement to bedroom, etc)  2 Months lost rent = $1,510 TOTAL UPFRONT COSTS $9,061 <-- This is an unfavorable numberPayback Period =  $9,061 / $3,973 = 2.3 years (Note if I'm conservative in my nubers, this becomes 3 years)Couple more things to note, they're set up on re-occurring payments and have not missed a payment.

Do I list them as an operating expense on schedule E even though they occurred before the in service date?

In addition you have equity pay down occurring.  

It is possible/feasible or unheard of to request that the previous owners file an insurance claim as the damage occurred before I moved in?

I'm familiar with putting contingencies on contracts, I have no idea why it didn't occur to me to make the 1031 a contingency, that's pretty brilliant.

The process of preapproval and getting the loan can/will occur over the same time as the LLC setup.

Sales get reversed all the time when this occurs or when it is discovered later that the borrower filed BK right before the sale. 

You can sell them all individually and coordinate your identifications and purchases so that they all sell within 180 days of the first sale, the closing of the purchase occurs within 180 days of the first sale, and that the identification of your potential replacements are consistent with the 45 day list of the first sale.4.