I am drafting the lease and planning to take it with me to closing, where we will be executing the document.

I would list the property and advise the tenants you are planning to sell. if they want to stay month to month, that's fine.

Do you plan to live there forever?

It depends on what your plans for the property are. 

Provided I can establish a solid investment plan tailored to their financial needs/comforts such as debt ratios and income, they would be more than happy to offer me some financial control.Additionally, If I wanted to, for the sake of building my own personal wealth, I admittedly have the luxury of taking a loan from my parents.

Now I am brand new to real estate so this could be dumb but I'm reading Brandon Turners "Rental Property Investing" book and I was intrigued by chapter 3 where he list out 4 plans to start with when getting into real estate.

You are going to get conflicting responses on this because a lot of it comes down to your plans and your tolerance for risk, which are things known only to you.

My plan would be use the 401k kind of like a hard money loan where I'd acquire the property, rehab it, then refinance long term, pay off the 401k loan and get it rented.

Legitimate, in this case, means that the entity is part of an overall business investment strategy whereby you have a business plan, tax returns, and the funds you seek are for further business expansion.If, however, the LLC is a stand alone entity, is not profitable, or is not legitimate, then your probably better off putting into your personal name and securing funding that way, or still talking to local or regional banks to see if they have any loan programs available where you might be able to secure financing.

Ask the township for their 3-5 year development plan...