REI must be able to "solve" problems, or they will not be successful...or like in your case, never get started.What's stopping you is you...not all the items you mentioned (Mental blocks, stagnation, stagflation, future economy, comfort, family...and above all, risk). 

The dilemma is this. 

Talk to a CPA with expertise on this topic. 

Not to be harsh, but as soon as you started to offer discounts and concessions to them, you were screwed.....they already figured out you are a weak landlord and they can walk all over you....sorry.... you set a bad precedent.Now they may have stopped paying rent and bailed anyway, but with your previous behavior, they smelled blood in the water and knew you were ripe to get bitten even more.Best you can do is start the paperwork for failure to pay, eviction and follow the law....recover the property and move on.Its always a dilemma about  going after the $$ they will owe you....huge hassle and you will never see the $$....but you let them off the hook with no record for the next landlord to find out about.....

My biggest dilemma is how do I make sure that when I refinance the house, after putting 20% down, my new mortgage payment won't be higher than the rent. 

Break it down and understand the problem, than find ways to solve it through networking and using better companies.

They may actually get their ask from someone who has bigger vision of value adds than we have (the zoning provides some potential opportunities but is beyond our expertise). 

The most straightforward way to solve this would be to ask the bank if you can put the HELOC in the LLC's name with the same collateral and a personal guarantee from you.

You should consult with the appropriate expertise to get the proper guidance you need.First, you are wondering whether you can operate as a business in the manner you are describing.

No, I provided my own expertise and services which I am very knowledgeable in Real Estate and Financial industry.