It worked for awhile and maybe a solid solution if the tenant complies. 

Being a self manager can save money so I am not  hater but you still should always comply with all professional approaches.

Have you ever heard of a seller and buyer working together to modify a property that doesn't comply with general FHA rules and finding a work around?

Not sure where your tenant lives, but just make sure you comply with the tenant laws.

You can call the Garage Conversion a "Junior ADU""Require the accessory dwelling units to comply with all of the following:(i) The unit may be rented separate from the primary residence, but may not be sold or otherwise conveyed separate from the primary residence.

The proper way to do it is to have an engineering based study which complies with all of the IRS guidelines. 

So if your LLC doesn't comply with local laws, because the laws are different in the other state, then it may be disregarded.

(C) If the landlord fails to comply with division (B) of this section, the tenant may recover the property and money due him, together with damages in an amount equal to the amount wrongfully withheld, and reasonable attorneys feesYou don't pay any interest (in Ohio) on security deposit less than one month rent.If it's security deposit equal two months rent, you have to account them separately and pay interest.With PM company, the security deposit is held in a special escrow account.

If you just source the deals, make sure that you are complying with laws surrounding realtors in the state you're looking at deals or make sure that you are actually involved in the entity that is buying the property. 

From my experience, in most municipalities, any change in use, would result with you having to comply with the current codes.