I would simply establish relationships with realtors and your investors. 

I'm familiar with the SEC rules & regulations, and have multiple attorneys review everything I say & do, to keep things very black & white on how we discuss fundraising. 

We only agreed to the ridiculously high fees because we wanted to establish business credit for new LLC and were told we could get the lump sum in our account in 2 weeks or less.

If you want to be completely certain, then you can dive into the zoning regulations and make sure there isn't a maximum amount of un related individuals living in one residence or specific bans on ADUs without enough lot size.I hope some of this helps!

In addition, in accordance with the regulations made under the Consumer Credit Act, if your loan term is greater than 12 months you will pay an additional 30 days interest.

Was hands on with tenants which established trust and was able to get information.

You have a governmental authority using its power to hinder and regulate private transactions creating some kind of “litmus” test based on god knows whatYou have a seller remaining in a home he sold indefinitely.You have a lender that has twice filed for foreclosure You have a profit sharing arrangement upon resale with the seller/tenantYou’re performing repairs/maintenance on a house while occupied by the seller/tenantAny or all these are lawsuit magnets.If you buy a property, and the seller is a consumer, not an investor, you should NEVER do a profit participation.  

The steps, licensing, regulations and everything are much much higher on option 1, however obviously would add a larger target market

These areas are not overly regulated yet, with the most restrictions I’ve run across so far being they can only STR for 120 days a year, or the rentals have to be a month at a time.

Ensure the property is tested and, if necessary, remediated by professionals.Permits and Code Compliance:Building Codes: Ensure that the restoration or rebuild complies with current building codes and regulations.