However, water stays with the house- meaning if the tenant's have a balance when they move out, they can open a new account somewhere else with no problem and the owner is stuck paying the bill or getting a lien filed against the property. 

If not, wholesale a house or two first.

How much can the house afford to pay in terms of rate?

I would like to set up an LLC for my house, but there's not a lot of information out there on building a rental property in your house.

Our housing stock is mostly single fam. 

My goal is to house hack a multi-family and then move out after 12-18 months when I am able to buy my 2nd property. 2 of the units are under lease agreements. 1 unit is vacant (which I would be living in).  

I have a STR house in a resort town, but the city’s new stricter policies have really cut into my revenue.

You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner.

There are currently three roofs on top of this house.

Hey @Henry Lazerow - I would tend to agree that most of the NW side of Chicago 2-4 units don't play out perfectly well for BRRRR deals.I always looked at any potential house hack vs. having to rent - if my overall payments were less than the rent I generally considered that a win.For me...the house hack is just the ticket into the amusement park and then the fun rides come after...getting started can be overwhelming and hard so I can see why people might take a discount.I think one of the keys to strong equity creation is square footage creation which is basically what you outlined with duplexing up or down.