He simply starts up a new LLC.I don't know about the laws governing LLC structure in Ohio, but in Texas we have the Series LLC available, as do some other states. 

This is specifically addressed in the SAFE Act, as a business plan as done just two years ago, these strategies are dead, most all are scams, that's why they included them in federal law and hammered operators doing rent-to-own.

Regardless of your political leanings, check out your state Obamacare web site (if it has one) or the federal site (if not.)

Also, there are more government enforced regulations to protect you.

The regulations that govern this idea and those around the servicing of the debt are not 'new'.

It's the government!

Here are a few details about the property:In the Federal Hill area of Baltimore which is very desirable.2 Bedroom. 1 Bath, however there is plumbing, an old sink, and toilet that is "technically a half bathroom" per the owner.

@Christopher Gilbert -I am not 100% sure, but if the property manager is licensed (and they have to be in Texas, but not all comply) there is probably a rule or law governed by the Texas Real Estate Commission.  

Its the same with Unlicensed PM's who think they can have a master lease and end up running a big PM operation....I had extensive conversations with the DRE investigator in MS over this issue and again he said its just a Ruse and they would shut down anyone without a valid brokers license if it appeared they were just acquiring multiple rentals on leases then releases them as in acting as a PM without a license.The Real Estate industry as a whole needs to help the government crack down on all this unlicensed activity by turning in these unlicensed people... that just try to flip contracts or homes without ever buying them...

What you describe is essentially creating a security, which is governed by federal laws and require a good bit of legal and accounting work to set up.