Roof, floors, hvac, appliances, hot water heater, exterior painting, bath and kitchen remodels, etc.

Currently heating and hot water cost to owner is $20K +.

Then they would only be sharing hot water with the lower unit. 

It would take a lot for water to penetrate 4 layers of roofing material. 

Very, very few contractors here use Ice and Water Shield. 

(This is an unofficial duplex)I pay Utilities (Electric, Water, Internet)I want to refinance (possibly cash-out refi) this property and put it under an LLC.I then want to then use my capital to purchase another home using an FHA loan.Can anyone please give me any advise that they think would help guide me through this process.

Be sure the net rental income covers any loans you have until you can pay back in full (another deed in hand) or you can refinance to hold itself.Now, again, this is my opinion and I am sure I will get bashed for it but I like a good safety net before plunging in deeper waters and leverage too much.

It was completely submerged in water (about 2-3 ft deep at the entrance of the crawlspace).

Tenants pay electric, owner pays sewer, water, and garbage (3,800/year).

So if you already have a buyer ready, you'll generally never have a problem.and I 100% agree with @Jay Hinrichs, just adding the above statements to the rest of the comments.Thanks for the tip I was given another that says it’s water to get the home and buyers are attracted but I think this method is easier!