You are over complicating the fundamentally simple act of buying a single small building as a residential rental.

One caveat I would add is that in rent controlled environments there is no discretion to raise rents to market levels later on, so the prudent landlord goes for the small rent increases that are available each year (in my jurisdiction these are never any greater than 2.5%).I think the advice about establishing what market rents are and then charging them is correct in general, however it can be a little more complicated than that.

The proposal seems overly complicated.

I know this is much more complicated than a few paragraphs, but has anyone else ran into a situation like this?

She also told me not to go with a "Big Bank" for my mortgage as this may be more complicated.

But when you have a three unit property, I would suspect that putting a tenant buyer in the property would be far more complicated because would probably need more than one unit filled in order to cash flow.

@Lafontant Cherilus lots of great advice stories here, but I just wanted to add that people have always told me things are too difficult/complicated/unattainable.

This is starting to seem really complicated but I want to get it done.I would love to get it set up to where I am paying the mortgage first and then him the difference.

I figure the three possible outcomes are 1) they both stay2) that she moves out, he stays3) they both move outPossible complication being that he stays, she moves out and he doesn't pay.  

You can establish a good business plan and run a rental property business without an LLC and it will be less complicated for you to do so.