As a backup plan, if I have to go with a local PM company that only leases the entire home, could I use an addendum to add additional tenants to the existing lease while ensuring everything is legally structured?

I track the principal as a Liability account in Xero, and whenever I add it to a report, it always shows the current balance, rather than the change over the chosen time period (like with expense accounts).  

There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.2.

@Bradley Buxton makes a very good point to make sure to do your due diligence as you won't be an owner occupant like your in-laws.Last bit of advice: Because this is a friendly deal, you want to take your time to make sure you structure it in a way that maximizes tax and cashflow benefits for both parties. 

You must work at least 750 hours per year in a qualified RE business.So most people who have high-earning W-2 jobs outside of real estate won't qualify.But the unique thing about RE pro status is that even if you don’t qualify but your spouse does, you can both file jointly and claim the losses from your RE investments to offset your other active income together.It's an incredibly powerful benefit if you do meet the criteria.

- Highly recommend REQUIRING tenants to get Renters Insurance and adding you, as the landlord, as additionally insured.

It will familiarize you with the basic terminology and benefits.

In addition, I do not need to make more money so I am not needing to push CA RE.  

There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.2.

If a home is titled in a trust (or an LLC), the trust or LLC should be added as an additional insured to avoid potential disputes during a claim.To confirm, we reached out to an insurance carrier, who clarified:“A carrier can potentially deny a claim if the home is titled in a trust or LLC but the insurance policy is under the individual homeowner's name.