I'm considering investing in STR in Hawaii to diversify my investment portfolio (mainly for capital appreciation) as well as it being a regular vacation place for my family.

I wrote the above for informational purposes.

Not sure what they purpose is if there's only 1 for 2-4 players . . .

Legal entities are set up for this purpose.  

I currently live in San Diego, Ca. but have been looking in the midwest, mainly Iowa, Indiana and Ohio, for properties. 

there was a group of 8 of us that pooled money in a Cabal myself and one other were the main money guys the others put in smaller amounts and when we won one.. we would divy up interest prorata to the amount contributed.. this kept those guys from competing against us and for sure we bid up newbies .. really the only ones that would beat us were those that wanted to live in the house and would just go almost all the way to retail or above .. or someone bidding on a second thinking it was a first and no one is going to help you if you dont know what your doing.. this is a very caveat emptar bizz.

So it's inherently difficult.That being said, There is really three main ways some of our investors make passive investments work with 1031 exchanges.1.

If you’re renting an apartment building to mostly Section 8 tenants, the main difference from single-family or smaller multifamily properties is scale—you’re dealing with more units, so you’ll need solid systems for maintenance and tenant management.

Can anyone recommend software which would accept monthly payments (from me to seller) and create proper 1099 forms for tax purposes at year end? 

If you recast (lower your monthly principal amount) and then just put in more principal next month like I'm doing then it's pointless for the purpose of paying off faster.