Now I realized that I had given them a long free ride and  I must do a new lease factoring how large the family have increased.

@Ryan Agustin For conventional financing assets and income and DTI's are the important factor. 

I'm inclined to LLC as I was told LLC offers better protection and may have better tax treatment.2.

Hi Mark, The payoff of a seller's note 3 years later is not considered to be a sale of real estate but merely a payoff of an outstanding debt, so it would not qualify for 1031 Exchange treatment at the end of 3 years. 

You didn't say how long you think you'll own the home, that should be factored in.

What 'ugly' factor can you accept in exchange for the great price?  

Remember when looking at value you need to look at all the factors involved - including the neighbors.  

What kind of extra expenses does everyone take into account for the additional units, are there any economies of scale, how do your factors change?

From some articles I have read though it sounds like exterior upgrades tend to have pretty good ROI, replacing the front door with a nice new steel one in a color that works well with the house, and new siding (or stucco or brick treatment) can be quite a good improvement in the look, that usually has pretty good ROI.

I fully understand leveraging and the multitude of other factors that go into real estate investing and creating an ability to scale, but I also do not like the thought of emptying the back account to try and acquire a property.