In doing so, bear in mind that the cost and admin of a corporation is higher and that the tax treatment is different:1.

I am in one of the higher tax brackets and could be saving around 40k~ a year on taxes with this.

My goal is to leverage that equity for additional income.

The best strategy is to not quit your day job until you've built a portfolio big enough meet your income requirements.You have three potential paths.  1) Build an active investing business, something that takes time.

When it comes to your 1031 exchange the LLC really isn't the issue.The IRS cares about which tax return reports the activity of the property.

State tax regulations are typically able to be researched by any CPA worth his/her salt. 

We'd even be happy to move them into one of our (future) properties and just let them keep all/most of their rent income as free cashflow. 

After depreciation you probably got that return almost 100% tax free.

For most lenders, they wanna see a 12 year lease in order to count the income to help your debt income ratio. there are not many lenders that I know of that will include short term or midterm income as part of the income side of your DTI. 

Some context, I have 3 other properties in a different city and am currently on 1099 income (so I can't do conventional) for the past 3 months.