They are happy to have their blocks cleaned up, happy to have their home values increase when we sell, and the property owner who I cold-called initially made some dough. 

Have you considered investing out of state for investing in cash flowing deals? 

The newer property just isn't cash-flowing the way we'd like it to be, so I'm looking into the viability of a 1031.

You and I show that two pretty seasoned people read his responses on here differently, which I think illustrates a reason clean it up.  

For steady income, Cleveland's a great choice with good cash flow potential.

Basically, from the lender's perspective, you just need to show how the asset is going to pay back the P&I and "cash flow" somehow.

This ended up being a great deal and I was able to recover my full investment, while holding onto a great cash-flowing rental.

2- If I employ a full-service property manager to handle tasks such as cleaning, maintenance, booking, and guest communication, while I focus on business aspects like property search, renovation, decoration, bookkeeping, and supply procurement, would this still qualify as material participation or could it pose a risk?

Stay in towns only where permits flow at least somewhat on time. 

How did they know the property they would invest in would cash flow and/or build equity over the long run?