I'll contact you later" type of response).Trouble for me is, I live overseas, so physically visiting this person is a bit difficult, but I'm not adverse to the idea, for the principle of the matter.My question is, at what point do I call the police? 

It will come at a cost of fees and some time though.Now umbrella insurance and liability insurance on the property is definitely an obtain and increasing the policy increases your protection but one thing that is always unknown is how much a claim will be. 

We purchased the property with a conventional loan and 5% down, 30 year, and a PMI obviously.We are doing some significant updates and upgrades that will increase property value.

We are undecided on whether to put down asphalt or gravel to help increase value to our home & property.  

Mario, while it can be difficult to find someone interested in the kind of arrangement you describe, you also may not be legally entitled to any rent for a residential unit that does not have its own certificate of occupancy.  

I hate to sound mistrusting, but it is going to be difficult enough to get this situation taken care of without adding to the tax debt by owing these additional fees.

But they also COULD show that the ratio starts decreasing (or increasing) with larger square footage.

Also - on condos or townhomes, an increase in the monthly HOA fees or a special assessment might wipe out your return.I caution you against counting on appreciation.  

Of course you'd be inheriting any unknown liabilities of the LLC, and you'd be assuming the llc's basis in the property and depending on the LLC original purchase price and depreciation taken, a much lower basis than your actual "purchase price", increasing your taxes when you sell.

The long-term tenants are in a 1-year lease that is actually $200 per month below current rental rates - the current owner has not kept up with the rental market, and has not properly raised rent as the demand has increased.