When the IRA invests in real estate using debt not only does it have to be non-recourse but the IRS says, you can use leverage but since you aren't only using IRA money for this investment the retirement account is going to pay UBIT on the income generated because of the debt. 

While I do maintain a relatively modest percentage of my assets in money market instruments, corporate debt funds, and high dividend stocks, I remain most comfortable with the investments I specialize in and know best.  

Use a home equity loan (fixed debt) instead of a HELOC (variable equity) and build an additional unit you can rent out in your own backyard.

@Shayan Sameer If you can service all debt and property expenses and have money left over then I'd say it's worth it.

It’s owning high quality assets within areas that have a high barrier to entry so that asset appreciates over time as you pay debt down.  

However, you can get loans that are based on the performance of the rental and not your personal income and debt.

Trying to decide if we should use a home equity loan for the remodel, do we need to put current home under LLC to help with debt to income ratio & would that affect getting the home equity loan?

Eliminate debt, establish a budget, and save.

I would suggest taking the route of option 2 or 3, so not only are you saving over 10k in rent per year but the residents help in paying down the debt.

A little update with the bank, they are now telling me that they aren't even going to consider a settlement or a short sale unless the past due 14 contractual payments (around 8-10k) are paid.