It looks like you’ve learned the perils of partnering and wisely understand the benefits of investing as locally as possible.

Even if I used my VA benefits for a $0 down and rented my current home out for $1.6k per month.

I like the benefits of S-Corp, however we wont be paying ourselves a salary.

Perhaps being new to the area, you are running into more problems because you don't have the benefit of referrals that you had in CA.

If ownership is a single member (me), then one of two things happens. 1) we go with the lease agreement option and then Partnership B is receiving passive income that is much lower than what is expected; or 2) we go with a management fee option and then all the profit flows to Partnership B, but the expenses unequally benefit me as the single owner. 

I am still doing the same work but set up the LT and LLC to provide improved asset protection but obviously want to structure my business so that I have both asset protection while maximizing tax benefits that i can.To be fair to my CPA he didn’t say this would be an issue, he is in the process of doing research to verify the impact of the organizational structure changes and I was looking to educate myself in parallel obviously hoping my research and my CPA’s landed in the same place.

I think there is a diminishing marginal benefit to upgrades you can do increase cash flow here given most things in your home is upgraded.

What's the benefit to the guest of being on the outskirts of town?

Again, cashflow and tax benefits add to the value add discussion.  

For those that don't know, group homes are single family homes that house "by the bed" and therefore come with many benefits, the primary being that they bring in anywhere from 1.5x - 2x the monthly rental income that a standard single family home would.