All they are doing is adding additional costs and getting zero protection.

Expensive markets are often desirable because many people want to live there, driving up demand and prices.Reno, NV, for instance, is a market that benefits from diversified employment sectors, including tech manufacturing, hospitality, and recreation.

The cons as i see it include loosing the 2 of 5 year cap gain exception, typically not an ideal rental because the emphasis at purchase was buying a good home for your family and not a rental with optimal return (my ex-home consistently has the lowest cash flow for equity in my RE portfolio), not disconnected enough from the property causes addition angst on damage and may result in over improvement.  

On the positive side, it seems like you have a good potential BRRRR that you can use to purchase additional properties.

Additionally, collecting the tenant’s portion of the rent (not covered by Section 8) can be difficult.3.

If you plan to own real estate for a lifetime, this can be a huge benefit to your heirs. 

Your wife as conservator/guardian has an obligation to her mother and selling the property to herself creates a conflict of interest in that she stands to benefit as the buyer and is also making decisions for someone else as the seller.2.

Significant benefits are the marketing and management. 

Are you saying the current property being exchanged has a debt of $200k and you need an additional $200k to purchase the new property? 

I'll look into VRBO as an additional platform as well, thank you!