Why take a larger risk when you are sitting great?  

Quote from @Michell Chase: I am working with a hard lender on a purchase/reno and they require a builders risk policy even though 1 unit of the 3/4 will have a tenant.  

Private lenders are not affiliated with private organizations like the American Association Of Private Lenders, and they all have different risk tolerance. 

While the traditional approach involves buying a multi family property, living in one unit and renting out the other - with rising prices and interest rates; others have considered renting out bedrooms as unit spaces. 

I question if you recognize the work and risk necessary to succeed in the current local market.  

Each potential buyer has come to their own conclusion that it would be too much hassle and risk to manage in this fashion vs a traditional rental even though the average cap rate in our area has been half that at best.

However, everyone involved would need to meet the IRS requirements for a 1031 exchange.Finally, regarding transferring an individual property from the partnership to a member directly, this could be tricky.

From what Ive read, it looks like I may have to get a business certificate to do this in SF but Im not sure what that entails or what else is involved?

IF that is the case full stop - yes you are paying for something called insurance but if you have a claim the company has the right to pretty much deny coverage for having the wrong type of policy.Landlord policies are higher cost but for a reason - there is a different and increased level of risk when the house is not owner occupied.Talk with your agent and get all the details sorted out. 

If your leasing application process is thorough and well thought out, and if your lease agreement has been well drafted by your local attorney and if it includes clauses that permit you/your property manager enough latitude to maneuver and anticipate undesirable tenant behaviors, both actions and inactions, and you have operational processes which align with enforcement of your lease, then you've done all you can do to reduce this inherent risk of an undesirable tenant.