There was a partial 1 car garage conversion that we converted back to a garage which housed the laundry and WH. moved the AC and had to redo the old cast iron plumbing.

If you grow into a more complex business, you may then convert to an S Corp, but the ease and flexibility of an llc is excellent for a start up. 

I dont know whether or not we should just leave it the way it is and rent it out or convert to a upper and lower floor duplex and rent them separately by adding another bedroom,and kitchen?

It looks like they converted the SFH into a duplex without pulling permits to do so.

Once we do, we will convert this house into a rental. 

The zoning allows for a triplex, and the unit most likely used to be an illegal quadplex that was converted back to a legal duplex.

Because of that, I want to convert that equity into another property.  

Looking to purchase an SRO property to convert into a multi-family.

At the end of the construction it converts to a permanent mortgage. 

The home is originally 2br /2bth , but the garage was  converted to a bedroom, making it a 3br/2bth.