I'd talk with your CPA about your tax liability first. 

The breed insurance exclusion will give you a reasonable justification, but it could still get messy if they pursue legal action.Id dig into the true status of it being an ESA and if that pans out as "real" then its reasonable to require the tenant to carry liability insurance for the pet

Nevertheless, in practice, self-employment tax liability remains a fair indicator. 

However, the matter of liability has been brought to my attention.

If you win a bid, you are inheriting an expensive headache, a safety concern, and a tax liability. 

Yes I'm a little bit younger so asset accumulation makes since but didn't Rich Dad Poor Dad say that property is not an Asset but rather a Liability until you own it free and clear?

That way you have the better loan terms as well as the liability protection. 

The reason most home inspector report all the little nit-picky things are due to liability.

Initially I was planning to establish an LLC for liability protection, but after several consultations with different law firms, entity structures seem more complicated and much more expensive than what I need just starting out and with and no real wealth to protect. 

Once you add up the lost rents, damages, and increased liabilities this tenant brings you're better off starting proceedings now.Another option?