I decided to keep the house and rent it out, currently I’m out of pocket almost $1300 to cover for mortgage. 

I wouldn't consider a SFR to be a mistake if the rent can cover the expenses.

Built out the basement into a 2 bed/1 bath unit Lessons learned?

My strategy is to use HELOC to cover down payment and convention loan to cover the rest of the mortgage.

If you're new to this, partnering with a trusted contractor can make a big difference in ensuring you're covering all the necessary costs.

My unit is a 1090 SF, 2 bed 1.5 bath townhouse.

I'm about to do a rent-by-the-room/co-living property there, since current LTR rents don't cover the mortgage with these interest rates. 

The first year was tight because of higher interets rates, but his tenants effectively covered about 70% of his living costs.

If you hired an agent or a broker to work with you, you'd be covered - but regulations & laws vary from place to place.Screening is best done by establishing a set of guidelines to qualify applicant tenants, then sticking to those rules to avoid legal issues (and for your own sanity).

And you avoid things like damaged properties (guest insurance from airbnb or prop manager themselves cover that), evictions, collections, etc.