Real Estate Investment Partnership

An LLC is an excellent choice, and one very commonly adopted by landlords or real estate investors or developers. (E.g. I am a NJ landlord-tenant attorney: most of my clients are LLCs.) Having an LLC will protect your personal assets from most (but not all; no protection is perfect) business-related debts or obligations, including court judgments (e.g. if the business is sued). A further refinement is to set up a separate LLC for each property you buy/own; that way, you never have more than one propertly legally at stake (the separate LLCs will operate as "firewalls" to protect property A from property B's liability)--this, too is very common. (I have one client who has 28 properties--and 28 LLCs.)
You can legally set it up anywhere--every state's LLCs are recognized by every other state's--but I'd recommend doing it in the state in which you own property: if you are sued (or, for that matter, sue someone else), it's most likely to be there (since any suits will probably come out of the property and its ownership), so its slightly simpler if the state in which you may be in court is the state of LLC formation, since that state will be fully familiar with all the laws relating to the formation of the LLC. This isn't a big consideration, but since there really is little to chose from between the different states (the laws are all very similar), it probably tips the balance in favor of the state in which the property exists.
Taxes: select "partnership" or "pass through" tax treatment. That way, there is no separate double "corporate" taxation. Instead, profits and losses drop directly to the members'  (owners) own income and are taxed with the rest of their income (e.g. profit adds to income; but losses detract from income and reduce taxes owed).