She hopes to scale the rental business and hire a property management company (1099) to manage all doors.Investor is also a broker, and would like to reinvest any commissions, rather than take them as salary or dividend (unless this really screws up tax treatment somehow). 

Properties acquired for rehab and then immediate sale do not qualify for 1031 Exchange treatment. 

My dad is going down there and will be down there for the next 3 months for cancer treatments.

They called me saying they weren't able to pay because the one tenant's mother was diagnosed with cancer and they needed to put available funds towards treatment.  

Like with any legal issue, the answer is that it depends on far more information than any one person on the internet has access to; including a state's individual treatment of personal liability, the financial structure of the individual or proposed business, and a whole host of other factors.If your chief concern is asset protection, stop taking advice from strangers online.

The portion of the property used as your primary residence will qualify for tax-free treatment under Section 121 and the portion of your property used as a rental property will qualify for tax-deferred treatment under Section 1031. 

All the usual chemical treatments tried were useless.I have no idea what they put down there but it was the consistency of bunker C oil.The basement was finished in the area under the sink & tearing the old pipes out from below would have caused way too much damage/cost.Finally I cleaned it out with a small $99 power washer I got from Home Depot to do other things.

If you claim investment, but the IRS thinks it might be inventory, they'll probably look at the treatment of your overall portfolio.

He just paid $8500 for pest treatment and repairs.....that the property probably needed.

Twisted Orkin arm for a 3rd treatment.