If a landlord calls you for a reference and asks, "did they leave it in good condition and get all their deposit back." they want you to say yes.The biggest question is what benefit is there in returning money to them throughout the year?

Previous to renting it was just me and my wife and we did not use the air conditioning much.

The carpet and paint were 5 years old but both in excellent condition. 

Should we both construct and sign a contract stating the terms and conditions of the loan and any ramifications/penalties for not paying back?

The house has new windows, 1 year old roof, and the first floor unit was redone with laminate flooring in the kitchen and has the original hardwood floors (good condition) in the 2 bedrooms and living room.

Suppose I use friends/family money (Private Money Lender) to loan me 45-65K with the condition that I will pay them from the HELOC once I get it, how much interest is considered reasonable to pay them if I pay them back in 30-45 days?  

What condition was the comp in?

I'm telling you as a local that the property is worth no more than 75,000 in it's current condition yet it is being assessed for ~$100,000 due to it generating rental income in the last 3 years.

After you are conditioned to it a little bit, you get used to it and it becomes acceptable because it is the trade off to be in a place where you can do what you want, within reason. 

Pricing your property below market doesn't mean you are stupid, it means you will potentially bring in less money than might be possible under optimal conditions.