Regarding taxes, I believe LLCs are pass-through entities, and you will just claim the income on your personal tax returns.

As of right now me, my partner , and one other person is moving in but, I need to find a way to fill in the other 2 bedrooms.

No "headaches" except for risk of near total loss of principle unless I put more money in...I'll take the risk of a project that I need to complete personally in exchange for a near-perfect risk/reward profile and complete understanding of the investment.

No personal income, tax returns or DTI to worry about.

Keeping your building expenses separate from your personal finances can make it a lot easier. 

Hard for a person to imagine living there. 

I would personally feel better if they were at 4" though, particularly if there will be small kids as renters.

It sounds like you are placing into service as a rental a house that was previously a personal residence.Your basis is purchase price + improvements made to the house from purchase to the time it was converted into a rental.

Hi Zak-Great question.It sounds like your credit union is offering you a Home Equity Line of Credit as they do not expect principal payments and your primary bank is offering you a Home Equity Loan.Personally, I don't like having to pay on an equity loan unless I use some of it and only pay on the part I use.Although, this is a personal decision for you.If you make investments that provide enough cashflow to pay the principal and interest to your primary bank on the equity loan it doesn't really matter to you as others are paying it.Another consideration is the amount of dry powder available to invest.

Online Rent Payment (please tell me you still don't collect rent in person).