Where is the best state to open an LLC for this purpose?

Every dollar you receive will have one purpose. 

So this would actually work against the intended purpose. 

I wrote the above for informational purposes.

But I have not been able to find any auction that would serve this purpose.

At this point we've had years of comparable sales in the area inflated with the "business value" baked in since many of the homes are used for this purpose once you get outside the city limits. 

Hard Money or DSCR is the way you want to go.Shouldn't be an issue where you are as long as your intention is for investment purposes and have the capital to put down.

If you have siblings on the deed, that starting number from an appraisal is one you will need for tax purposes going forward.

LLC-A is a disregarded entity for tax purposes and I report the rental income/expense on Sch-E. 

Tariq  Tariq, this will vary widely on your ultimate purpose and experience.