Qualifying as Real Estate Professional out of state

[Karl S.]

I posted earlier on trying to reduce my W2 income with REI, and got mostly positive responses to my idea.

Now I wanted to get an opinion of a few CPAs and investors on how to qualify as RE professional when mainly investing out of state, where one would hire PMs to do much of the day to day work. I read the rules closely, especially the material participation tests, and am trying to see what would make the out of state activity qualify as materially participating. 

Out of the 7 ways to qualify, I find two practical ways:

(1) Spend 500 hours on the activity. I guess that would include flying to the location, purchasing properties, managing any remodeling, figuring out loans / refis, hiring PMs, etc. It would also include managing PMs, perhaps taking on some work that can be done remotely like reviewing tenant applications, collecting / reviewing bids for fixes, etc. My question is what volume of properties (how many doors, how many properties) would be needed to qualify, ballpark, if I needed 500 hours completely out of state.

(2) Spend 100 hours on it and more than anyone else. I guess if you have a few properties, you can have a few PMs and argue you spent more time than any single PM (especially if you take on some PM work that you can do remotely). This would be much easier to meet on a time basis (the rest of 650 hours can then be spent locally to meet the test), but may be hard to argue you spent more time than any PM. I wonder if you can include it on a PMs contract to only spend 100 hours, after which you or a PM company would assign another PM if needed, etc. This is probably too much work, but I wanted to see if anyone is using this method or has experience defending it.

(3) Going back to (1) and (2), combine that activity with some local investments where you are the PM, helping you get the hours. My understanding is this is certainly classified as the "same activity" as the out of state investments. My question is, would PM'ing properties for others (as a self employed contractor) could also classified as the same "activity"?

Thank you.