We lived in it for 2 years to take advantage of bieng exempted from capital gains tax and sold it in May of 2014 for a 6 figure net.

In Michigan, look at Section 339.2503 Exemptions; definition of Michigan Compiled Laws which contains the definition of real estate brokerage:Sec. 2503.(1) This article shall not apply to an individual, partnership, association, or corporation, who as owner, sells or offers for sale a detached, single family dwelling, duplex, triplex, or quadruplex, which has never been occupied and which was built by the individual, partnership, association, or corporation while licensed under article 24.

The thought being that you didn't want seniors dumping assets at bargain rates to friends and family to become eligible for Medicaid to cover their long term care or other big medical bills. 

The other reason is  that private lenders are exempt from many lending regulations, they call themselves private lenders to stay under the radar as to compliance, so there are those individual types doing back alley loans as an unregulated lender.

Assuming that you already have 3-6 months of emergency savings already (in case of job loss, medical stuff, whatever...stuff happens), you might want to save some more $ to act as reserves for your future investment.

But, if this is a FANNIE or Freddie property, they claim "exemption" from transfer taxes as a govt entity, but the Clerk of Courts still collect it.  

And not sure in that state but there may be a home owner exemption were the tax's are much less than for rentals.

I am planning to rent to medical students/residentsI have 4b/2.5ba for 4000 sq ft. 

Yes, there will be capital gains taxes on the value of the new sale minus the value at the time of the inheritance, but you also have an exemption.

LLCs are corporate entities. 506b & 506c are exemptions to registration that we use to raise capital for deals.