Some ppl find that's worth the risk, some ppl don't. 

A 1031 also adds complexity and timing pressure.Watch Out For:Opportunity Cost: Renovations tie up cash that could go toward other investments or reserves.MTR/STR Management: These models require more time and effort than LTR, even without a property manager.Market Risks: WA properties may appreciate slower than expected, and higher costs could reduce your margins.If cash flow is your priority, option 1 (renovate and STR/MTR) likely offers the highest upside.

And typically long term rentals don't make it easy to include property management fees into the numbers and have them still work well.I would consider looking into STR type areas where you can avoid the risk of property damages (str and pm insurance covers almost everything that they might damage) and evictions/collections.   

Build your home criteria based on investment goals, risk profile, returns desired, holding timeline.

While many of these issues are important considerations and should not be ignored or overlooked, there are other more crucial criteria that you must question and evaluate first.The critical risk criteria that you must review and evaluate prior to making your final decision on which 1031 Exchange Qualified Intermediary to retain includes, but is not limited to, the following areas:Technical capability of the 1031 Exchange Qualified IntermediaryInternal processes and audit controls to safeguard your 1031 Exchange funds and assetsUse of Qualified Trust Accounts or Qualified Escrow AccountsDecision criteria and guidelines for investment of your 1031 Exchange fundsProtection from potential errors or omissions by the Qualified Intermediary (E&O Insurance) Protection from potential theft or embezzlement of 1031 Exchange funds (Fidelity Bond) An experienced and professional 1031 Exchange Qualified Intermediary will understand these concerns and should be happy to discuss these crucial issues with you.

For you that's $7,500 a year, without taking any Risk.

The risk you are describing is really the same risk every investor faces.

In this completive market, it seems as though off-market deals is the only place to really find a "comfortable" position to be in (although completely aware that we are all in a risk filled area of investing). 

Fears/risks: the underwriting projection seems too good which likely means very aggressive.  

With that in mind, which approach do you think works best:1.Use property management software (PMS) as an intermediary to automate payments and fee splits while reducing legal risk and simplifying operations?