Vanessa, If you choose the seller financed route, you could potentially continue investing under the bank's stringent debt-to-income radar, so to speak.

Then figure  tax on your income. 

To go a bit further into what Dmitriy mentioned, since your IRA earns the income the tax treatment is specific to your IRA.

I own a small portfolio that brings enough income for me not to have a w-2 income.

Sure, some voucher recipients game the system (years ago, I had a tenant who knew exactly how many hours she could work and how much income she could earn to remain on the program).

You either have verified income and meet the other requirements, or don't. 

David if your looking for steady passive income with lower risk, Huntsville may be the better option.

From a tax perspective, the LLC will be a pass-through entity (if a single-member LLC, it remains disregarded for tax purposes), meaning you can still report income on your personal return (Schedule E).

My thinking immediately turned to researching local rental costs per square foot to determine income potential with triple the current square footage.

As for financing, make sure to explore options for using rental income to qualify, and be prepared for a 20% down payment.