Most investors use LLCs for an entity but to really decide you should probably talk to both an attorney and CPA.You have not included a lot of information that would be relevant to the decision: - Do you have a net worth large enough that you are a target, so need an entity?   

Second question, Should I go toward the top of my budget (qualified at $260,000 and currently looking at properties near that amount) at the start, or should I scale back and do a smaller property a little further away to test the waters and gain some experience with finding and managing tenants, but will allow me to easily afford the mortgage in the event of vacancy.Any advice, or criticism, would be greatly appreciated.

We have one property and after getting a rather large CPA bill ($1600+) for the 1065 Partnership Returns and K-1 forms (along with a bit, not a lot, of correspondence on phone and email about quickbooks, which we use). 

So my question is, would there be any large downsides to me using a company in completely different area from where i live?

That said, there isn't a TON of inventory and most of what is available is typically in the 8-12 unit range in a higher risk area.As for neighborhoods, I'd prefer not to post too much publicly as the area is rather geographically large and it's hard to get to specific.

Sure, it's $500 a year but if you know they will go out soon it's worth it to me to do that yearly than one large lump sum all of a sudden. 

(we have a couple large contractors that give us their leftover 5's we then mix to gether to make one color). 

1) I would advise against going into business with family or friends, when large sums of money are involved somehow people just become irrational and take advantage of pre-existing relationships... but if you insist I would highly recommend that you write up some type of partnership agreement and have each partner have their own lawyer review it.2) If you want a partnership but have no idea what each person's role is, I have to ask why have a partnership at all?

In considering my next move, I'd like to know what experienced investors think about the scale-ability, sustainability, and future of vacation rentals are!

Comps do play a major factor in dictating the valuation of the property but like he mentioned, comparable cap rates is what is a large factor which boils down to the rents you obtain.