I understand there may be some expenses required to make the property a bit less of an eye sore based on the pictures. 

Can make you very sore if you aren't in good shape or if you are tall. 

I deducted the treatment from her security deposit and also sent her a copy of the invoice as proof of the flea problem. 

If you are someone that is not interested in adding to your taxable income, then lending may not be a good option for you since the returns may be decent but the tax treatment is poor. 

When I asked my existing UK tax accountant about using a US LLC to invest in property she sent me a law firm's review of a recent Supreme Court case on UK tax treatment of US LLCs that didn't fully clarify the issue (!?!?!).

You never know when the county/state will try to shut you down private sewage system wise.Water,, owning the leaking pipes and the testing / treatment is an expense.  

@Alex Stepanov it's unfortunate that you are getting this kind of treatment from local agents.Yes, we are very busy in our extremely active market but I couldn't image treating anyone like you've be so far.I know in our office of 65 retail agents, most [all] don't like to deal with investor because they "low ball" and only buy low end properties and the commission is very low.Your reasonable ROI goal of 7% can be done easily.Have you selected a property manager yet?  

The amount of time that you hold the property does not determine whether you qualify for 1031 Exchange treatment. 

Your responsibility to pay back the bank for your old mortgage and tax treatment on the sale of the house are separate considerations.

So if your goal is to try to maintain the passive nature of real estate activity, it can backfire on you if you are not a real estate professional.If you are a real estate professional, then you're foregoing the favorable treatment for passive income, capital gains, etc anyway, so an S-Corp is a fairly good setup.