Here are some of your answers and considerations to discuss with them:

Rental income is taxable, and self-rental income has limitations for expenses, so that is either nondeductible losses or taxable income.

Question 3 doesn't apply if the LLC owns the building. There is no personal ownership.

Question 4 doesn't apply, for the same reason. They stepped off that road by putting the building into an LLC. They turned it into "rental business." That's sad, in a hot market where price appreciation could be substantial and they are going to live there for the minimum time (2 years out of 5 years).

"They are in the process now of re-titling to the LLC."

Instead of this, I wonder if they cannot pursue "subdivision" to condos, so that they are separately titled and own the 2 (each individually), and the LLC owns the one true rental. Assuming you have condos in this region and that this is permissable.

Find out who they consulted and what that cost them, just for giggles.