I don't currently have any business entity/LLC, so that would probably eliminate the option of implementing a consulting contract and charging a fee for services. 

This will suspend your net passive losses and carry them forward to a future tax year and eliminate the net passive loss allowance on page 1 of your 1040. 

Non agressive breed dogs or your insurance company may cancel your policy.A Pet fee is free money.I make all my properties pet friendly by eliminating carpet.

They pay very little property tax as the home was purchased a long time ago and isn't subject to the normal rates.The question is, is there a way for them to keep their current house, pay off / refinance the existing mortgage or get another heloc in a way that would eliminate the need for the windstorm insurance, rent the house out, and get cash out to buy (mortgage) another property?

As long as at the end of the exchange you purchased at least as much as your net sale and as long as you used all of your cash proceeds in the purchase you will defer all tax.Supplementing with cash to eliminate debt is a very sound late market strategy when interest rates start to climb. 

In your experience, does this eliminate lot of competition and increase scope to bring down the offer price?

In trying to get this to be a passive investment I do everything I can do eliminate unwarranted hassles. 

I'm moving from San Francisco - so Denver may be hot but at least I have the chance to purchase in the area which is exciting.My current plan is to use FHA to move into a rehab/ready move in for a house hack to eliminate my housing expense and hopefully get a little cashflow.

Eliminate the tax slowly - yes eliminate it! 

You would also eliminate the design constraints of working with the existing structure.