The IRS generally agrees, and their audit guidelines specifically address a situation where someone own only a few rentals and tries to claim this status.And, as discussed above, that depreciation deduction is reducing your basis, which has the effect of increasing your gain when you sell.  

But, the fact that the daughter has been paying the real estate taxes for 5 years could also have an effect on the legal status.

What damage and other things should I look for to consider should I decide to make an offer?

You also have the time and brain damage of dealing with them.

Also, what are some ways to produce leads that you found effective?

Some of the issues that would be addressed are: Death or Serious Disability of a Partner/Member;Withdrawal;Assignment of Interest;Failure to Contribute Subsequent Capital Contributions;Material Breach of the Agreement; ETC....Any potential issues that could arise during the operation of your business, should be talked about before the creation of any type of entity; then once discussed, put down in writing in the agreement so each person agrees to the outcome BEFORE it even happens.In the event that a Partner/Member violates one of the provisions of the agreement, they then become personally liable for any damages caused by such breach. 

water damage is the roof leaking?

Unless I am calculating this wrong: $1,600*.5 = $800 effective gross revenue. 800 - 280-100=$420. 

So long as they're not damaging your property, let them be children.  

Further, the guidance is issued and expected to be followed and has an effective date post publication.