Namely, these 2 key bits...(1) Even tho the ownership test is only required of 1 of 2 spouses, the residency test is required of BOTH spouses if filing jointly, which we were planning to do.... yet my wife did NOT live in the house during the past 5 years, which means that we'd have to file separately and will definitely complicate things quite a bit, but if it's worth it.... then, well, it's worth it!!

Here is my situation:- I'm a W2 employee that earns north of $500k a year- My wife is a stay-at-home-spouse- I'm looking to buy ~ $1,000,000 in STR Real Estate by the end of the year (as an investment and to offset my tax bill)I'm fairly well versed in the rules surrounding using STR to offset active income.

if the building cashflows really well ... it wouldn't be a big deal to use a loan for dp right...at 10% down for lower income housing I don't have much money and I think that this is the best way to get multi-family management experience to meet hud loan requirements in the future which Have the lowest Down payment options.Am I overthinking it?

Additionally it may be the cities you have invested in as well. 

This really isn't a question of what's the "best" way to invest, it's more what works well for you, your resources and lifestyle. 

I'm also open to other markets as well.

Someone is going to buy and renovate the property; so, it may as well be you, someone who will handle it respectfully (and many residents end up staying). 

I pledged the deed to a townhome I owned free and clear as well as the promissory note owed me on another property as additional collateral.

This gives the owner client peace of mind as well as some protection.Non-humble self promotion: I own and operate Blue Door Residential Property Management (and am fully licensed) and would be happy to talk about your needs if you want to shoot me a PM.

I will also be creating a property management company (based in NJ as well) to manage the LLC's property.