Wanting to move these properties into an LLC but I find out we have to pay taxes (7%) on the transfer equivalent to the mortgage balance.

for some reason REITs have never been a sexy asset class, older investors look at REITs as a weird-bond and wonder why own something with 4-5% dividend when they can own Investment Grade corporates at 5-6% or even recently US treasuries at 5%, and young investors don't even know what they are.yet they acquire class A real estate, the kind you and I can't due to price, the kind that has the best capital appreciation in great areas long term, and they have access to credit at lower rates than us, or they can just print shares and get new capital for free that way, to buy more great properties, They can pay for the best management, they don't ever pay brokerage fees either in or out (have everything in -house), and they generally have much lower risk as most of their portfolios are leveraged at only about 30-40% LTV, and we have zero personal liability when owning them as opposed to the litigation headaches we get with direct RE, and right now they collectively are on sale about 25-50% below their NAVs at lowest valuation since 2008, as opposed to SP500 at all time highs.

We are moving to our first project of fix and hold using BRRRR strategy. 

After spending 20K on a remodel prior to move-in, the tenant chose to hang more than 50 items from the ceilings and walls.

Hey Mathios, totally can relate with you being from an expensive real estate market - I moved to Columbus a few years ago (from Portland, Oregon which was super expensive) to become a full time real estate investor, and ever since, I've completed quite a lot of BRRRRs, flips, and own a successful rental portfolio here in Columbus Ohio.

The original plan was to live in one unit (as requird by the loan terms) for one year and rent out the other, then move & rent both units after the 1 year requirement (currently living with relatives).

Would you have to wait until the current owner moves out...in a year...if they actually leave as agreed? 

I moved from Florida to start investing in Columbus due to the same reason.

Unfortunately I have a tenant moving out and am looking for guidance on the process of vetting out for a new tenant.

I have never bought a property for nothing but I was able to get many many communities with nothing down and great seller financing terms.Listen to the seller, find out what their motivation is, their pain point then present them with a solution and see where it goes, when the terms make sense have the guts to move forward.