Since this is a numbers game, the only way you can answer the question is to do the following:Establish a relationship w/ a realtor winning to run some comparables for you showing the potential value if you convert from a 2 flat to a singleIf the values are not significantly hire than your mortgage then hold on to it as a 2 flatIf the values are significantly hire than your mortgage then get some estimates for converting from a 2 flat to a single.  

Of #1-3 I prefer #1&2 over #3 as I feel the provider has more "skin in the game" and their compensation is better aligned to yours as the passive investor.

insurance policy is a good way to go.I have been in this game for 40 years and never even came close to sniffing a lawsuit from a tenant.. but of course the very day I say this you get sued..

Spend time on the forums to get a solid grip on the real estate game.

That changes the game a lot...you don't want to move somewhere of course that you hate just for the sake of being able to invest there.

Title III will be a game changer in the real estate space for smaller projects.  

The rate will be a bit higher, but you can keep buying.I would agree with this statement however finding a residential portfolio lender especially at a fixed rate and an acceptable amortization table if buying for cash flow may prove challenging. 

It sounds like you have a solid game plan and are ready to put the rubber to the road.

So townhouse/row houses are pretty much the only game in that neighborhood and those townhomes can go for something in the $300-$600K range.

If you plan on living there first (house hacking), you'll have a great advantage getting started in the game.