Depending on size, you may be required to, typically with large scale, multimillion dollar assets.For smaller assets, i.e. single family, duplex, fourplex, you get liability protection. 

It is ESPECIALLY important in this townhome that's built on a crawlspace because it has a $15K encapsulation system underneath the building that protects the crawlspace and most importantly pumps water out because it's in a weird almost flood zone type of area... only gets bad when it rains heavy, and boy does it rain heavy here.   

Plus, you'll have some asset protection on the rental just because of the mortgage note.

Has anyone dealt with this type of issue that can give me guidance that will legally protect me?

As long as you can draw a line of the "reasonable use" of the structure for the disability (this includes CARETAKERS, so now the caretaker could be living in the shed), then you are federally protected by this law, and the federal government will come to your aid if the city "abuses" or "discriminates" against you. 

This is important because you need protection against tenants that do not pay rent.

What are the best practices and methods to protect yourself as a landlord?

Trusts and LLCs owning property must be protected for other risks beyond the usual property and liability risks associated with home ownership.

Many OOS investing require a boots-on-the-ground team in order to keep their projects protected both fiscally and physically.

Hers is to protect herself.