Everything is running extremely thin and we all discussed that we need to find something we SOME leeway, especially since this is our first project. 

.$1,737/month on a $3,000 rent sounds really great to me, I don't think you want to jump out because of the 50% rule with those numbers.Your main concern is getting the project done fast and getting renters in there.

CongratulationsHow did you pay for the project?  

If you can move into a place and work on it, saving yourself overhead, protecting your project, those can be good things and you'll also meet the neighbors and probably pick up more deals that way. 

My advice to you is simple:decide if you want a totally passive investment, where a project manger actually finds, rehabs, rents and distributes your cash flow back to you....or do you plan to be hands on?

We plan on doing most of the work ourselves but we know some of the projects will require a professional.

A flip is a business, so it is subject to ordinary income tax.The IRS does not care if you buy a house, improve it and resell it or you buy bread, mustard and lunch meat and make sandwiches - to them it is the exact same business model.You can search the vast number of writings I've done on this subject on Bigger Pockets.I agree with your CPA in all aspects and here is why.Running it through an LLC:  If this project comes in at a loss, how is your investor going to prove out their share of a loss or report it? 

I will find out when this project is done and I crunch final numbers.I would love to hear from you. 

Absolutely the first thing is to decide what type of property you want to buy as you want that to be a project you are truly interested in doing.

Hello,I am a newbie in this industry that is looking to get into developing real estate projects in Orange County, CA.