Midterm rentals often offer higher returns than long-term rentals, but you'll also have to manage more frequent turnovers and potential vacancies.

The risk is too high of losing everything.

With clay you risk busting the tiles, or even dislodging one that has to then be excavated anyway.

Are there specific advantages or potential pitfalls I should consider when structuring these activities through my LLC?

If they want to severely overpay, cool, but as others have said, the risk of default in this case is probably high 98th percentile. 

While I haven't personally experienced any negative impacts from this fraudulent listing, I'm concerned that it could mislead potential renters and cause them financial distress.

This is a personal choice and depends largely on your risk tolerance level and the current demand for rentals in your area.Vehicle Repossessions: Having a vehicle repossessed is strong indication that a tenant cannot handle their money very well.

Are there any institutions or other loan products that offer 3.5% down (potentially can go up to 10% depending on the total construction costs) AND takes into account the rental income?

I do look at the relationship to the potential renter. 

,Buying, renovating, and selling is a great strategy, but here are a few things to consider:Start with the Numbers: Make sure you know your ARV (After Repair Value) and work backward to calculate your budget, including purchase, renovation, holding, and selling costs.Financing Blindspots: Even if you’re buying in cash, plan for potential delays or overruns in renovation costs.