Buy a duplex as a primary and live in half for a year.

The truth is, about 99.5% of lenders who offer conventional mortgages in the US won't lend to someone who isn't based in the US, even if that person is a US citizen living abroad or works for a US company.

If I want to continue to live in my primary residence AND now rent out a portion of it to a renter, am I able to do so? 

I also live very frugally. 

The tenant is on permanent disability, and has been hospitalized a handful of times in the two years that she has lived there.

That should give them enough time to find a new living situation, in my opinion.  

Here is one I added to this list specifically resulting from this transaction:      Are there any persons or pets presently living in any of the units that are not included in the lease agreements?

Also, how does interest taxation work if you live in state X but lend to a syndicating flipper in state Y?

Sell it and reinvest it in a house hack where we currently live (we are currently renting from a relative below the market rental rates but home prices are very expensive where we live.

I don't know the specifics of where the line in the sand is for you regarding the benefit but I live in a high cost of living area.