Utilize options to tie up a vacant property while you attempt to increase its value by obtaining a tenant.

There is nothing that exists that will completely insulate your rental property from complete liability, because the minute it is rented, you are exposing yourself to liability.

We are staring to work with larger projects that will all be build to rent.  

You use the funds of others to fund the deal, you do the work with rehabbing, renting, and managing side of the deal and both you and the initial investor whom invested their funds split the profits 50/50.2.)

The house rents for $1200 month currently and will be able to get $1600 if renovated (finish basement bathroom, new flooring and fixtures, mainly cosmetic).

If you knowingly rented a home with a small backyard to a tenant with a dog, regardless the size of the dog, wear and tear is going to come into play.  

I used Zillow to list my rental and accepted someone's application however after my few interactions with them on the phone some major red flags have come up and I wanted to know am I under any legal obligation to rent my property to this person. 

Did you also rent by the room?

Banks were renting spaces to get business back in the 20s, hence commercial, and they rented to clothing, shaving, and shine boutiques and whoever else wanted to pay for a space.Some banks will treat anything over a single-family home as a type of commercial property as you are technically renting space as commercially defined. 

We rented a STR in Hawaii and ended up buying rat traps because "that area is know for rodents".