@Jacob Villalobos, yes that kitces blog is one of the best I've seen explaining the conversion process and impact on taxation.Besides Oumon said he doesn't want to 1031. 

"What should I do to improve my position with my 40k in equity that has income with out a time constrant?"...............

I would just not want to get in a position where I'm trying to shop a deal around and can't find a buyer. 

Your equity is reducing your possible returns not increasing your cash flow.If your father has no use for additional income he could leave it where it is and not care if it is impacted in a market shift or he could pull it out and invest in a income fund or a REIT. 

I was planning on self managing since its just a single family home and I'm not going to have any positive cash flow until at least 2 years so I don't want to give up another percentage to a management company.

I'm not an attorney, but I'm basically positive that kind of thing is considered illegal if he's just trying to jack up the HOA fees to get others to sell at a discount.

One example and there are many, would be a private money lender with a first lien position. 

To get technical, you will be going up against the Economic Substance Doctrine which states that a transaction has economic substance if: (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position; and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.By transferring your primary residence into a LLC, you would not be changing your economic position.

If you don't have the reserve funds going into a investment property you are not in a position to invest. 

Positive cash flow, or appreciation?