What alternative method would you propose for the IRS to use to verify someone's status as a Real Estate Professional? 

Other than sell (this doesn't sound like a good rental at all), the only alternative I can think of is to rent out a room or 2.

And I think I would be limited to selling to someone that could pay cash or had alternative financing besides agency debt probably because they would be buying the ownership in the LLC that has title to the property. 

Even buying in a solid C as compared to a lower C-end area can make a huge difference over the course of time.So I say take the time and be patient to find something in the better areas you are looking in because you know now from experience what the alternative is. 

While screening alternatives, be clear with your expectations; time of response, repair solutions (new or repair), reasonableness of costs, how do they vet contractors/repair companies.  

Alternative loans such as hard money would be the only options?

The appreciation in these areas so far had been unbelievable, at least for us, though I avoided investing at market tops.

@Bryan RichardsonIf you have a partner, would it be better to do each loans under both of our names or alternate each property under individually?

If not eligible to set up a Solo 401k and you have funds retirement funds which are eligible to rollover (e.g. funds not in a current employer plan), you can rollover retirement funds to an IRA at an IRA provider which allows for alternative investments. 

I tried looking into alternatives like self-directed IRA's to avoid the penalty & taxes but it's extremely restricted, and it seems that the only purpose is to make money for the IRA.