The other option is to try and bring on another partner as well

If you can't find the option anywhere, I would call in to customer service and see if anyone can help you. 

You will benefit from low-down payment options (3.5-5%), possibly reduced living expenses, appreciation, and loan pay-down.

Is that not a good option?  

STRs typically represent a higher/risk reward.

Any tips on which is a better option?

I find that when it comes to local advice, Facebook groups are typically the best place to go. 

Second, the HELOC has a balloon payment, typically every 5 or 10 years. 

Most professional tax software programs have an option to specify that rental income is non-passive, and that will cause the Schedule E tax loss for that activity to bypass form 8582. 

We have a lot of money tied up in the unit and would like to find a rental unit the we would consider living in at some point with a house hack option/ADU and or a home that has a better long term appreciation potential.