Memphis has great potential for solid investments and we have a unique market.

Unique approach for sure, kudos to you.

We have toyed the Real Estate investment idea for a couple of years and now feel ready to take some action. 

You need to ask your CPA to give you a definitive answer to your questions based on your unique facts and circumstances.Other related issues you should also consider ... your hazard insurance  policy and your title insurance policy. 

As someone wobbling before their 1st investing baby steps this question isn't a top priority, but following 'begin with the end in mind' (and because I like to follow odd tangents)...Everyone has their personal plan, a unique goal.

House hacking is a great way to do this, but in our area you have a unique opportunity to buy a 2, 3, or 4 unit with your first time homebuyer.

This is a $640,000 to $1,120,000 deal (actually pencils out to closer to $900,000 since each house is unique).

There may be unique circumstances (people have lease, etc) otherwise, if they don't move / will not move, then you go to JP Court and file for eviction.

Is the second story an addition or some type of unique add-on?  

I rent out a storage unit for my small business ventures and toys.