Torrance currently has zoning code that covers accessory dwelling units (ADUs) that I would like to take advantage of to permit the rec room as a dwelling so that I can live in it and rent out the main house.

He ended up hiring a no-nonsense Property Manager, but regularly visited the properties himself and presented himself to the tenants as the sometimes maintenance man.I think you should either cut yourself out of the picture entirely by hiring a PM, or continue to manage yourself and be upfront with the tenant. 

Looking at your profile picture in a dress shirt and jacket, I would assume you are in your mid 20's.

The tenant's rent will cover most of the mortgage but not all leaving me coming out of pocket about 400$.

(Also looking into splitting the water meters so tenants cover their own water bills).

A home inspector is always going to give you a worst-case scenario opinion of things, since they need to cover their asses.  

Yes, I work for a national property management franchise and our office covers Indianapolis and the surrounding areas.

It's in great shape with updated kitchen and master, but we have 17k worth of solar panels on the roof and we need the sale to cover that.

Would it be a good idea to pay to become my own LLC to cover myself in the event of a freak lawsuit from a disgruntled renter?

Im in a similar situation with a municipality, but if you are able to cover health insurance through the service, that makes the transition out of the traditional W-2 much more feasible and also covers all of your bases.