Also, if you sell and do not 1031 exchange/have an exemption from living there you're looking at a hefty tax bill.One final point, you know that property pretty well at this point so you have a good idea of potential future capex repair costs so it's a known investment.If it were me I would hold that all day long and get an equity line to keep investing.

From what I've been able to find, I should be exempt from paying the 10% penalty if I use the funds within 120 days towards the purchase or repair of my first home (score!).  

One cannot advertise, sell, or lease a property without a license unless he owns it or falls under one of the other various exemptions.

Will the 600,000 gain be divided by 3 and they won't pay capital gains on only their particular unit, or will the 500,000 max exemption apply to the whole building?

If not, sell it before you lose your owner/occupant tax exemption!  

Just to revise my previous post... rent control in Ontario now applies to all rental properties, no longer are newer buildings exempt in an effort to encourage new development. 

Also if you think the property is located high enough, you can get an elevation survey done to try to get the house exempted from flood insurance.

What the difference of using LLC vs PPM California Qualifying under the Section 25102(f) Reg D Blue Sky Filing exemption?

It's best for you to have a consultation with a real estate syndication attorney who can help you figure out the legal structure and securities exemption that most closely matches your long-term goals, based on the size and type of properties you will acquire, their location, and the financial qualifications of your investors.

Alternatively, I would see if you could apply for a zoning exemption with the city to allow for two rentals.