While this is happening, the existing properties are accumulating equity from appreciation (hopefully). 

Remember, a good agreement makes a good deal better, but a bad agreement makes a good deal bad.Also, as @Dan Heuschele alluded to, if either of you performs any activities whatsoever while residents of California, the state of California's position is that you will have to register your LLC with the California Secretary of State (even if formed in Texas or some other jurisdiction), file the annual Form 568, and pay the annual $800 tax.Also, by forming an LLC in Texas, you may be subject to the Texas Franchise Tax.So really the only person who can answer the question of whether you need an LLC or some other entity/arrangement is a qualified attorney who thoroughly understands each partner's situation with respect to themselves and each other.If you need a reference to a good one, I have one. 

We purchased our home during covid and we have a chunk in equity, which we do not want to tap into. 

All I pointed to is the fact that you talked positively about a specific project.

I am also liking the short term rental arbitrage model as there might be more monthly cash flow revenue, depending on the property, location and market of course,  but the downside is that there is no appreciation and no equity pay down overtime but the exit strategy is fairly simple and easy to execute and you can always scale-up the number of units and stay or go to new STR markets if you need as you do not own any investment STR properties.

It took a lot of sweat equity and the help of family members and friends, I have a lot to be grateful for.

Otherwise, it's 3.But like some have said, it's really nunya, and it says nothing about Cash flow, equity, wealth, or FI.With that said, it's up to you.

Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio.

We fully rehabbed it and continue to build equity.

I think if its not cash flow positive it might not be worth it.