Get a duplex and live in one side.

You can't charge extra pet rent or even a pet deposit because it's legally not considered a pet.

Are the kids walking around the living room? 

Quote from @Andrew Lawlor: I've been actively investing in short-term rental properties for the past three years, managing one live property and another that will go live in two months.

For example, if you live onsite. 

I'm assuming that this situation wouldn't pass inspection, but one could argue that all the spaces the guests have access to (i.e. bedroom, bathroom) are safe and habitable + the guests wouldn't be exposed to the kitchen.Also, do the city inspectors inspect other parts of the home the guests won't access (i.e. inspectors check the basement for water infiltration even though no guests would ever be living or even going down there). 

She prefers they sell the house right now, as is, and live off their profit.

Personally, I bought a 3 bed single family home soon after starting my job and had two friends from college rent which covered my mortgage plus a little extra.

Also, keep in mind that an IN multi member LLC would require a separate tax return, so you would want to budget for extra admin fees.

Thank you for sharing your experience here; it’s a good reminder to be extra careful when dealing with properties like this.This post has definitely made me realize how important it is to double-check zoning and property classifications before closing on a deal.