All of the banks told me up to 2 units just like @Harjeet Bhatti said. doesn't hurt to keep trying and asking.

But your issue becomes that regardless of how you would like it priced, the bank is going to price it based on comparable sales so even if a 6% CAP gives you a value of 600k but the highest comparable they can find is 500k, you're going to run into problems when your buyer goes to finance.

Your original offer was asking for more than a bank would give you, which with owner financing almost never happens. 

I've heard some banks will/have the right to call your note. 

Landscaping can be done for a couple hundred bucks and can really help with tenants and bank appraisals

Of the home I do not live in, I would like to create an LLC and get transfer the home from the mortgage under my personal name into the LLC with the intention of later selling the home with a 1031 exchange to purchase a larger investment property.

It is my understanding that financing with a bank mortgage in 1st position and a seller carry back in 2nd position is something that was allowed prior to 2008 but has since died out.

Can I ask the bank for the extra 40k to do whatever repairs necessary to my liking, such as on a line of credit.

However, the advantage is that I can use leverage from the bank and get a high return. 

The bank doesn’t really care who you use for insurance as long as you have it.