The property is a REO Occupied home that we could not inspect prior to bidding and only had one photo of a really bad exterior.

I recommend you confirm that with someone else other than your agent.Food for thought…Insurance related: I’m currently replacing a roof on a house I own, not because the roof is “bad” but because it isn’t possible for the next buyer to get insurance with such an old roof (barrel tile, which lasts longer than the 30 years that insurance companies require).  

If you can target one in a higher end area, you could find really nice slabs (probably have to cut them of course) that don't look bad.

Risk Tolerance- We are no longer okay with the risk of having a bad snow season.

Planning to treat the LLC as a partnership where I will sit as a GP and create another Blocker LLC Corp that will be treated as an LP.

Keep that in mind as you'll want to treat all the tenants the same instead of potentially raising one persons rent more than the other. 

As bad as CA is, people won't vote them out.

Buying another single family isn't a bad idea, and neither is buying a duplex.

You need to disclose it either way, why pass on something you know is bad to the next person?

I learned the hard way and from others, this a legal contract and if they are not upholding their end you need to treat it as such.