The house raising or demolition is usually mandated when a house has substantial damage, or some similar term they use, which basically means over 50% damaged. 

Your education has also prepared you to analyze cycles and this point in the market is not an easy entry for passive investors not willing to be a small part of a much larger endeavor.In your case I'd be looking to real estate more as a tax hedge that will build substantial cash flow over time while delivering substantial depreciation and tax benefits from day one. 

(Well, it would be once the 6-plexes are fully rented.)Also consider what you have to maintain for each property:Office: 1 Roof6-plexes: 2 RoofsOffice: 4 HVAC units6-plexes: 12 furnaces + 12 AC window unitsOffice: 2 kitchenettes (Fridge, sink)6-plexes: 12 full kitchens (Above, plus range/oven, vent/hood, dishwasher, etc.)Office: 4 bathrooms6-plexes: 12 bathroomsA couple more confounding factors: The office building is built in 2005 and located in a suburb of a major metropolitan area currently experiencing substantial growth.

I’m interested in taking this on in Minneapolis and want to make some relationships.

Although our portfolio is growing substantially and we've got solid income coming in, I'm not sure that it's quite at the point where it would stand alone on its own and command financing options (without my wife's W-2 income). 

But I knew in the back of my mind that if her plans didn't work out, there could end up being some substantial risk for me if interest rates popped.

I might suggest proposing returning half the deposit, which is substantially more than your obligation, just to try to get things back to smooth and friendly.

The original numbers made for a substantial return, but a competitive housing market in downtown Tucson has made this deal a home run.

My main motivation for financial independence is our substantial health issues keep me wondering what the future holds for us and how long are we able to enjoy our 3 loving kids.

If they say it's a tear-down, it's probably pretty rough and even if not completely torn-down, you're probably into substantial repairs.