The feedback I've received from people is that the legal side tends to be excellent. 

.: I haven't passed this past legal review so for what its worth: Part of my standard requirements for everyone include income is at least 3X rent, minimum credit score, say 640, Clean record and no evictions as well as deposit is paid in full at signing of lease and 1st month rent is paid in full prior to handing over the keys.

Legal Structure – Would this be structured as a leaseback or seller financing with safeguards?

In total, including money lost from rent, legal fees, and repairs, the situation cost almost $30k.

I am assuming short-term rentals would be legal in the municipality.

Will the title company put this property under our LLC name, and won’t be required to legally inform HUD/tax authorities. - will it influence property taxes once we move to conventional loan in 3 yrs? 

Note that legal and transfer costs are not deductible but can be added to your cost basis.

The real prohibitive costs come from the legal, compliance, and reporting requirements of registering a security.

Or a legal perspective?

Much better than a legal filing or media attention.