Make sure you READ your title insurance policy and discuss what is going on with your title company or attorney in case the relatives try to make a claim against the property.Change the locks and do your thing.

He and I are both clear that good practices and insurance are #1 but the LLC does have a purpose. 

I'm sure he could afford a bit more by now for taxes and insurance, but his landlord hasn't raised rents so he hasn't had to.   

Tenant shall have no right or claim to any insurance or insurance proceeds of Landlord.

It would also need to state that the seller must be able to provide clear and insurable title, as having acquired the house through adverse possession may become an issue.

Option 1 - 5% down payment, living in one bedroom side, renting two bedroom sideIncome: $650 (for the 2 bed side, while I live in the one bedroom side)Expenses: Vacancy 10%: $65 Insurance- $107Water - $70Taxes - $85Trash - $35Repair - $65Capex - $158Mortgage - $390PMI - $56Total Expenses - $1031Cash Flow: $-381Out of pocket, upfront costs - $8058Cash on Cash Return – (-56.7%)Option 2 – 20% down payment, living in one side, renting two bedroom sideIncome: $650 (for the 2 bed side, while I live in the one bedroom side)Expenses: Vacancy 10%: $65Insurance- $107Water - $70Taxes - $85Trash - $35Repair - $65Capex - $158Mortgage - $330Total - $915Cashflow: $- 265Out of pocket, upfront costs - $20,036Cash on Cash Return – (-15.87%)Option 3 - 5% down payment, renting both sidesIncome: $1100Expenses: Vacancy 10%: $65 Insurance- $107Water - $70Taxes - $85Trash - $35Repair - $65Capex - $158Mortgage - $390PMI - $56Total Expenses - $1031Cash Flow: $69 Out of pocket, upfront costs - $8058Cash on Cash Return: 10.27%Option 4 – 20% down payment, renting both sides Income: $1100 Expenses: Vacancy 10%: $65Insurance- $107Water - $70Taxes - $85Trash - $35Repair - $65Capex - $158Mortgage - $330Total - $915Cashflow: $185Out of pocket, upfront costs - $20,036Cash on Cash Return: 11.08%My goal is to live in one side for a year and then move out with the first two options I look at the negative cashflow as what I would pay in "rent" to live in my own house (rent is higher than both numbers in my area).

But I would make sure you take into account all expenses (taxes, insurance, property management, repairs, CapEx, etc.) to determine monthly cash flow.  

Thanks Nikia, if say the septic leaked, do you have liability on things like environmental damage or health issues?

I understand that the property will still be covered by my personal liabilty insurance, but I would like to move the other business aspects into a separate business identity.

If I pursued the second strategy, wouldn't I have to get 2 insurance policies, one while I personally own the property, and another when I change title to my LLC.