My partner wants to do the deal under an LLC and seems a bit worried about getting sued and the tenant going after our personal assets.

Like you mentioned, @Jay Lohn, it seems like a reasonable investment in tenant retention.Since we're currently owner occupying one of the units, there are some pretty attractive improvement loans that we could take advantage, so may now be the time to do it.

From what I'm reading, Personal LOC seems to hit your personal credit rating rather badly and Business LOC can't be used because HUD will not deal with businesses. 

I called them and subsequently called FHA who told me to call my current lender but also gave me advice that led to my same conclusion:All FHA AirBnb rules seem to be specifically geared towards my unit that I live in.

Funny, seems like this thread just keeps breeding house-hacking interested ME's, as I am one as well, I've been listening to the past BP podcasts after my brother turned me onto them, and now trying to get involved in other ways to continue moving forward. 

I sure do hate to have to evict people, but it seems no matter the screening things happen. 

I would be curious to know how many investors are really purchasing residential real estate deals with owner financing...The idea of owner financing in the context of a residential property has always seemed to me to be a bit of an urban legend; something promoted by so-called gurus to new investors hoping to get started buying deals with "other people's money" and no capacity to get a loan from a traditional lender.Let's consider the the most basic version of owner financing:  Buyer agrees to purchase property from seller. 

This was not surprising - as many other owners have ran into the same issue and there doesn't seem to be a fix.What is my obligation at this point?

It seems like it needs a significant rehab, those are not for everybody .... 

It seems like I possibly could get a good price for them.