A paid-off property usually kicks off more income than can be offset by depreciation and is a lawsuit magnet.

The risk with having one LLC vs two LLC's is that in one LLC, all property and assets may be available for the tenant to get if they win the lawsuit. 

I often break it down into the "five pillars" of protecting your assets.1st pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments - these simple steps will help you prevent lawsuits before they even occur.2nd pillar is a good insurance policy as that cover the majority of your exposure.

* What do you do to ensure that the tenant is responsible for security deposit disputes since that is the largest reason for owner lawsuits* How familiar are you with the newly changed laws that can affect you the owner if they are not used correctly?

I think the square footage is way under quoted since the previous owners converted an attached garage to a master suite and built a mother-in-law suite in back of the detached garage. 

I hired him for a quiet title law suit against me.

Do a background check on the contractor , because as a contractor I do them on my customers . ( liens , judgements , criminal , lawsuits ) .  

This is in prep for any lawsuits.5. 

At this point the taxing authority has already won a foreclosure lawsuit in district court.... you could potentially make a deal with the seller to buy it before the sale, and as part of that deal pay off the taxes, attorney fees, and penalties before the sale, but the seller will also have to generate enough proceeds to also pay their IRS lien. 

I figure I can get a loan of approx $1.25M and build / rehab a decent property with that money (where as simply buying wouldn't get me much).Ideally, I'd get a 2/3br 2ba in a decent neighborhood and build an in-law-suite on the property, with the plan being to move into the in-law-suite and rent out the home.Neighborhoods I'm looking at are in NE LA: Mt.