I am seeking advice on how to turn this deal into a fair and legal win/win.I found a duplex in my target area for a fair price, but I have a couple other deals going on so my capital is tied up.

HVAC, plumbing, and roofing will most likely be the only things contracted out, yes I know those are major.

After speaking to the city, it is legal to use a secondary dwelling on the property for employees or as a vacation house.

Hey Mike,An LLC is a legal concept which provides a great deal of limited liability protections.

Nope.http://www.realtor.org/legal-case-summaries/thomas-v-daubs-business-broker-may-not-collect-fee-without-real-estate-license

I am under contract for rental #1 and am worried about how I will finance the next 2, but this is making it seem like anything is possible.  

Late last year we purchased our first multi-family (duplex) and house hacked it and are now under contract to purchase another this month.

So, there's a good chance that you'd have less trouble with someone that is concerned about keeping their legal status.

If it is occupied with a bad tenant, then I could get a discount, but I want them out before COE and specify such in the contract.

My job was to find a property that needed rehab, put it under contract, they would lend up to 100% financing and sell the property afterwards.