That's $20,293 per year in "income" I will have to declare. - Depending on appreciation, I will be underwater for at least a decade in this "deal".

For example, Inheritance tax, capital gains tax ( not planning on selling but just in case), etc. do we create an llc within a trust or do we create a corporation. my accountant recommended a c corp and doing a title transfer but from the research I've done the leaves us liable to capital gains tax.

Since we would be using the money in the same manner could we use a 1031 exchange to defer the gain income tax ?

Any gain on property you hold for less then 12 months will be considered income. 

The very high income investor typically 700k a year and up income with job or business who is busy but gets googly eyes looking at some pro-forma high return and have no clue what they are looking at.

If it is to play it safe and have a feel for the type of actual operating income that the property can produce before you put debt on it, that's a safe and solid idea.The good news, however, is that you're likely going to be purchasing a furnished property.

How would they determine qualifying income?

That would piss any person off even in the high income realm.

I am trying to get an asset based loan my fiance and I don't have the best W2 incomes but we have enough assets to foot the bill. 

We currently live off of her income from her W2 while getting her company off the ground.