1) Will you lose material participation in the cost segregation if your property is in a neighboring state?

It would help if you could participate with someone else while gaining knowledge, what I mean is, its better to be applying or thinking about applying the knowledge as you learn it rather than just absorb a bunch of knowledge but not go through the difficult part of applying it to the real world.One thing you can do is look at strategies you would like to do.

He has watched and superficially participated since birth but has not acquired certain knowledge.  

@Michael Plaks has a great post on this topic.2 - Assess the value of those tax deductions to you: The value of a deduction depends on (a) whether you're actually able to use it to reduce taxable income and (b) your marginal tax rate.As an STR, assuming the average rental period is 7 days or less, key items to consider are: (a) material participation and (b) avoidance of "excessive" personal use.

I only have 9 units and see some require 500+ units to participate. 

Quite the opposite: I invest my own personal money in each deal alongside our members, as just one more participant.

No promises but what you may find yourself in a deal  with limited $ because you learned what your network is looking for or someone in your network allowed you to participate in a deal.  

@Don KonipolWe have done very similar on a quasi participation agreement where it’s a 12% loan and 2 points at $500k.

Ask your current bank if they have a participating bank partner who will do Consruction loans.2. 

When you have a big cost segregation depreciation plus your big startup expenses such as furniture and supplies, and you then have a big tax deduction against your big W-2 income because your passive losses are no longer limited with your big material participation, it increases your audit risk a ton.