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Based upon my limited exposure to both markets I personally think they are just different, and are suited for different types of strategies.

We tried to design it to fit well in the sweet little neighborhood and have the style of the old Ann Arbor homes, which sell like hotcakes, but the amenities of a newer house--mud room/first floor laundry, master suite with luxury bath, large kitchen, etc.

From what I've learned so far, REI seems like the path best suited for me to accomplish that.

I'd like to add that if you are concerned about getting sued in Ohio and you have a legitimate claim against the tenant, then go ahead and sue them first and file the suit in Texas.  

I buy a lot of properties in Metro Detroit and I've seen deals like that but those are in neighborhoods that I feel like I should be suiting up in full combat gear before I get out of my car.Realistically in C+ neighborhoods you should be getting a Net ROI of around 12% possibly lower and possibly higher depending on mistakes that are made and what kind of luck you have. 

AZ has some very stringent construction defect suits and is the hardest state to procure GL for a GC.So you are taking an extremely high risk by working with uninsured contractors.

We have one roommate living with us.My thoughts are to remodel the current house add a master suite to the bottom of our split level foyer.

So I would go with the option that is most suited to how much time and skill you want to spend on it, and how much risk you are willing to take on.

Yes, you are correct on your 1st question, if the 1st mortgage is the one foreclosing, AND properly names the 2nd in the foreclosure suit.