That is basically an extra tax return, legal fees for setup, bookkeeping costs (if you aren't doing it yourself), possibly an umbrella policy.

Consider remote monitoring tools (like security cameras), and budget an extra 10-15% for surprises.

Maybe take extra steps like walking the prospect to their car and glancing into it, while that is not a 100% indication that they will be a good resident, it definitely helps.

I’ve been interested in getting into real estate as a way to potentially have extra income and also have more of a safety net in retirement, either through cashing in on equity or continuing to own rentals.

The power differential is real and you are helping equalize the playing field  The reality is if you are an ethical and consistent strong performing syndicator/GP, you should be extra supportive of this.

There are some exceptions to this but this is the general rule.The $150,000 hurdle shrinks to $75,000 if you are married but filing a separate return.Creating an LLC does not suddenly bypass this.In actuality, you created another filing requirement which your CPA will charge you an extra cost for. 

Keeping this as a rental would not cover the mortgage (we'd have to pay ~1500 a month including utilities) and we can afford the extra payment, but is it worth it when looking at appreciation?

I suggest going the extra mile by providing access to these services yourself, and you could even advertise features like $5 movie rentals on Prime Video to create additional value for your guests.Hope that helps, and good luck with your investment in Cancun!

I know the addage if you treat it like a hobby it will pay you like a hobby but if I have some extra cash maybe it's better spent on a 2nd home with the potential for income vs. just using that money in my primary home. 

The goal here is to reduce liability.Consult an Attorney for Liability Options: An attorney could advise on setting up an umbrella insurance policy to add an extra layer of liability protection.