The house that I live in is very easily devideble.

But with that comes more expenses, more insurance, more turnover, more cleaning services (I live 3 hours away) - so much more to deal with. 

So I told the seller, I got a bad vibe from this, sounds like this lady is going to live to a hundred, and rent control laws, as well as laws protecting tenants over 62 here in NYC make it impossible to get rid of her.

The cost of living is extremely low compared to other cities and you can still many many positive cash flowing and 1% deals here.

Live in the 1 unit while renting the others.

I am asking because the below-grade basement is not counted toward living space in Kentucky, even if it is finished, and I was told that appraisers count only half of the basement space when valuing the property.

If you're simply seeking leverage for additional properties you can tap banks and hard money/private money lenders.

However, I'd like to see some income showing that they can pay for utilities, and regular living expenses. 

I lived in Katy growing up.

If you pursue co-living properties, I would still highly encourage you to analyze the deal as an LTR as a backup strategy in case things go sideways.