If homes are in Rs zoning I'd consider renovating them for sure.

We have been considering opening a Real Estate LLC to support with this and possible future investment interests.

While this hasn't been needed in the past, I’m considering if it could help prevent tenants from reporting problems later that they claim existed when they moved in.

If you are worried about being sued, there is an argument for opting to just get umbrella insurance.For your specific situation you could consider speaking with a RE attorney or there are services that can help you set all of this up.

If you’re concerned about the cash income, you could consider additional safeguards, like a higher security deposit or using a guarantor.

To qualify, taxpayers must meet specific criteria demonstrating that they are real estate professionals who materially participate in their rental activities.How to Navigate the Rules:Step 1: Identify your real property trades or businessesHere is a list of activities that are considered to be a real property trade or business:RedevelopmentLeasingConversionConstructionReal property developmentReconstructionOperationRentalBrokerageManagementAcquisitionIf you participate in multiple of these activities, you may be able to combine them making it easier to meet the material participation hour requirements.Step 2: Demonstrate material participation in real property trades or businessesThere are seven tests to determine if you demonstrate material participation.

Here's an article with things to consider when selecting a cost segregation company.

You should consider investing in RE outside your retirement account as well since there are different tax benefits available.  

You may not have this problem in NM, but here where those letters are reversed we have bitter cold winter to consider.

Are there other options I haven't considered?