That said, if I were in your shoes the first thing I'd do is try and match up a vacation rental in that market that is for sale today with one that's also professionally managed. 

I suspect when you look back you will find you did the same.If you got an inspection on the property you may want to reach out to the inspector if anything was obvious but I don't think you will get any help there.You could also try to get an attorney to send a certified letter saying you are considering legal action if you can't come to a resolution but any additional fees may not be worth it.If I were in your shoes I would remedy the safety issues (electrical, plumbing, etc) with licensed contractors making them pull permits, consider this a lesson learned, and move on. 

On one hand it's enticing to spread the capital among multiple properties to diversify and kick start my portfolio but on the other hand I know eventually I'm going to want to scale into larger properties for maximum cash flow.What would you do if you were in my shoes?

Knowing the market is the first step which you answered.Remember if seller had multiple bids they will be less likely to go all out on your inspection repairs.I would still try if I was in your shoes, send them inspection report with issue you would like repaired or replaced worst they can say is no or maybe give back partial amount of repair.

I passed on the property and didn't look back.So if I were in your shoes I'd make sure there were 5+ deals that look good on spreadsheets if you're going down the Trulia, Zillow, Realtor.com, etc. route. 

Brandon this is about a 7-8 mos. project for us - to flip the entire building over and renovate it and get it back online with new tenant pool of occupants - I renovate as many as I can simultaneously, just set it up like a conveyer belt and move through them in sequence:*Demo team - remove all old fixtures, flooring etc, cut out all tile in whole sheets - then they set the new cement board and get the drywall hung and taped, set the new plumbing rough-in valve*Flooring and Tile team follow - get that installed with the new shoe mold on the perimeter*Painting team follows*Finish team returns for all fixture and finish install - *Painters complete touch-ups if needed *Cleaning team - BOOM!

I would love to know the route you more experienced guys and girls out there would take if you were in my shoes with the end goal in mind.

What would you do in my shoes? 

If I were in your shoes I would consider a few performing notes where the yields are in the 10% range.

Of course I may be biased as a Realtor, but if I was in your shoes, I would likely use the homeowner tax exemption by selling the current property and buying another similar property in the area if you are happy with the current returns you are receiving (or if not, buying in a new area or property type).