They live in a building with two apartments, one up and one down.

It will actually take up a sizable amount of the unit.My question is, do we need to rent the owners unit from our own LLC?

I'd also recommend dumping the garages there's almost a total loss on that unless you are putting units above them on a dense infill lot for additional units it's not worth the cost of construction. build cost is pretty high for your market for three story suburban walk ups. we could never build at that price and make any money. suburban sells for 160k a door in our market with land. get on yardi make sure you Arne't going to lose money on it.

We did a 6-month inspection a few months back, nothing really turned up.  

I looked up everything & all now I am afraid to do anything with my rental as far as borrowing cause of this.

One of the things we ran into was ending up under $100,000 on our loan for or refi.

have 2 index funds set up (one for retirement) and am generally pretty far ahead. 

I think it's not only possible to advertise to this niche, I think you should consider setting up an online group or community around this.

Seeing the houses getting fixed up and seeing what they rent or sell for has been inspiration to keep slowly learning over the year.

Are there any cities you visit frequently or have family or friends who could check up on the property?