I think there might actually be a way to both grow your portfolio and respect his conservative nature using the 1031 exchange.You mentioned that your properties were held in cash. 

Be respectful and try to talk openly with the tenant.

Remember, a good agreement makes a good deal better, but a bad agreement makes a good deal bad.Also, as @Dan Heuschele alluded to, if either of you performs any activities whatsoever while residents of California, the state of California's position is that you will have to register your LLC with the California Secretary of State (even if formed in Texas or some other jurisdiction), file the annual Form 568, and pay the annual $800 tax.Also, by forming an LLC in Texas, you may be subject to the Texas Franchise Tax.So really the only person who can answer the question of whether you need an LLC or some other entity/arrangement is a qualified attorney who thoroughly understands each partner's situation with respect to themselves and each other.If you need a reference to a good one, I have one. 

Hopefully you respect their time and are loyal to them once the time comes to sell the properties. 

PS - There's a big difference between "sugar-coating" something and just being a kind human who treats others with respect.

Robert  I'll need to respectfully disagree with this.

& confusing:Sellers reply: I respectfully suggest that the premise of not being protected is incorrect.

I wouldn't discount so much that you end up getting people who won't respect your property. 

-Landlords who are found to be in violation of the ordinance with respect to source of income can be fined up to $1,000 per incident.

As far as I'm concerned, I don't really care because I won't advance any money to a company who doesn't always respect their legal obligations towards clients.