And then in terms of financing, I've been on the phone with multiple lenders and they've said that you have to put down 15% conventional for a duplex, but could just do an FHA for 3.5% (so we could have more cash in reserve).  

In addition to not over improving for the value of the condo compared to other units in your building, you need to think in terms of STR rates.Look at your option 1, 2 and just doing the basics.

You are absolutely right in terms of being able to raise the rent based on what I read so far.

Would that be beneficial in terms of asset protection strategy?

A partnership can be the best growth strategy, or it can be the worst equivalent of working for a terrible boss, except the terrible boss will be yourself.Try not to think of it in terms of should, and think about it intuitively.

But right now we are having 2 potential tenants who are both mom and pop  (for the same unit) so they are about the same in term of credit worthiness that's why I only need to look/compare the rates for now. 

I just don’t know what to do next in terms of how to get in the field early.

Basically, I'm looking to acquire the property either sub2 (which isn't the issue) or out right purchase, but in terms of exit strategy if I purchase it out right then do the numbers look a bit tight to work as a fix/flip? 

This feels much more intimidating to me as a first time investor but, at the same time, also feels like less financially risky (at least in terms of the property cost / down payment outlay).

This will give you an advantage when negotiating and also will open more doors for you in terms of property condition if you are looking for a house with a value add element.