I understand the difference between the Special vs General, so obviously general is preferred. but in order to get the deal, is that an acceptable risk?

So I told him, "Look, I understand that you don't want anything to happen, but my earnings are NOT contingent on your inability to accept the risks of doing business". 

How can an OOS investor get in on this market and keep risks low and returns high?

That’s why it’s important to establish good relationships with lenders to avoid that risk.  

I sell Property #1 for 40K down as 'boot' to cover the recapture tax (40K - taxes + 25K) from the buyer and he/she also brings a bank loan for 180K and I carry 180K of seller financing over 20 years. 

The crew your friend is talking about is probably NOT licensed nor bonded, so there is a large risk in working with that team. 

@Gary Baker, An owner carry note is not a 1031 exchange. 

Like you said I won’t get too carried away until I know where I’m going to be working but I’m just hoping to be ready to commit when the time does come.

I am sure our rationale is the same as everyone else's that gets into multifamily - more tenants to spread the expenses over, less risk overall in regards to vacancy.

If already placed in service, I would still deduct it even though you have a loss as you can carry forward your loss.