Let her sell it as she won’t have a taxable gain which you will have if she gives it to you and you sell.

The only situation that I think it would make sense for you to start investing right now would be if you are not investing the full $200,000 and are looking to take some money off the board and put it into a safer investment.

The LLC sells the subject property and buys, for example, 3 replacement properties in a 1031 exchange. 

You are not selling the property. 

As far as selling... you will have to disclose the problem whether you fixed it or not.

Wanting to incentivize/help those of retirement age to sell who won't sell/downsize because their new smaller home would be at a higher interest rate. 

The tax is based on selling price minus purchased price.

Even if the rental has a decent cash flow with additional flood insurance, we're still not sure we want to take on that risk as we are out-of-state investors (planning to move back to KY in the future, but not now) and we don't like that it will potentially bring down the perceived value when we try to sell it in the future.The seller has never lived there and has not provided any information on if it has flooded before or not. 

Unfortunately, of everything that you have pointed out, this would be the one I would suggest selling. 

Typically they sell their note to clear liquidity.Curious - Are you looking for a specific niche of deals?