I am going to run the LLC very strict, no co-mingling of funds, but still have fear that if one of my tenants were to ever bring a law suit against me I'd be named personally.

Living in 1x1.5 mother-in-law suite while renting out 3x2 bd main house.

Well let's see I dunno if this was a blunder or not but I got sued for $7.2 Million in 2019 due to a documentary I made on turnkey scam allegations...That was kind of lame, however it's just a SLAPP lawsuit from some clown so I wouldn't do anything different.

We renovated the airbnb area and so the contractor applied for a building permit to do the renovations and for some reason he got us to sign the restrictive mother in law suite covenant.

I need help navigating a lawsuit.  

This could potentially undermine some of the protections an LLC provides if, for example, a lawsuit were ever to occur.Regardless of the method you use, always provide tenants with an itemized statement if you make any deductions from their security deposit.

They basically said that if there is an issue and a lawsuit is filed, all parties will be named.

@Jason MercheyTheoretically it could work, but it is very high risk of disagreements, threats of lawsuits, divorce among couples with ownership interests, inheritance by death, etc, incapacitation.

This not only applies to potential lawsuits or other similar events, but also applies to the financing.

In Canada you are limited  to options on how to own property and protect your personal assets from lawsuits resulting from your running a rental business.