This type of property would be very challenging for an EXPERIENCED investor to take down. 

What adds complexity to our plan, is that we live in Minnesota... ...How challenging is it to meet the material participation hours needed to achieve active status?..

I am finding the market challenging especially as it relates to cash flow.  

The challenges experienced in the cases mentioned above and elsewhere would be non-existent.

Just be prepared for a learning curve and stay adaptable to new challenges.

Our portfolio currently cash flows, but cash flow isn’t our top priority right now since we plan to use this portfolio to supplement our retirement in 12 years when I leave the Army.My biggest challenge is committing to an out-of-state market.

The location hasn't had a lot of demand which has made it challenging for him to find an end buyer. 

Tight inventory can definitely be a challenge, but it sounds like you’re taking proactive steps.

So rather than overemphasizing WHICH market to chose, emphasize finding the right mentor/coach/team because it is possible to fail in a good investment market when you do not know what you are doing and to succeed in a more challenging market when you do know what you are doing. 

While it’s an affordable entry point with low maintenance, you need to watch out for high HOA fees, rental restrictions, and resale challenges.