., and the ability to offset W-2 income may have limitations due to the passive activity loss rules.

I want to buy him out because the property has a 3% mortgage rate, has gained 100k in equity the last 4 years and cash flows 1k a month.

Is wholesaling a good first step for gaining experience?

For example, deductions on Schedule E might impact passive activity loss limitations or eligibility for certain credits.

The IRS considers rental income "passive," and losses can only offset other passive income unless you qualify as a Real Estate Professional. 

My main plan to use real estate for is to eventually generate passive income.

That's a handsome return for a pretty passive approach.  

I would not include appreciation since that is an unrealized gain.

I purchased the property after reading Brandon Turner's Rental Property Investing, and with what I learned, planned to purchase 1 property per year for 7 years to develop a solid stream of passive income.

STR is a business/ job  .. if your looking for that I guess its OK.. but if you want more passive with stellar returns..