Since IRS is based on guilty until proven innocent mentality, if I am audited, I would never be able to prove my write offs are ordinary and necessary to my business.

Is it expensive to hire a company to do energy audits in a space as small as mine?

Lol Been independently studying financial and investment education for the past 3 years, and just at that point where i just have to leap!

Are there any areas that you would consider trying to find something in?Depends

We are pursuing financial independence through real estate investing, and I was wondering if it was best to set up our investments as a business, or if we should continue buying as individuals?

Successful investors must work independently, and sometimes that means spending the weekend in the car, scouting potential properties.

The IRS when conducting audits allows reasonable subjective positions, but they also look for consistent application.  

As I grew up and become more and more financially independent, deep inside I want to prove myself I can live better, especially when I was studying aboard while my parents were in China.

It is approximately 200 units and audited financials revealed that they are after 400K in arrears which they may or may not receive.

For a moment, who knows or cares what that is doing, think of this discussion in a "flat appreciation" frame of mind independent of what the overall 'housing market' does or doesn't do.