The only way the upside is worth the risk for a syndicated asset is for the risk-adjusted returns to make sense relative to placing the money somewhere else with less systemic risk. 

I pay water but I inform tenants that if usage is above historical averages, rent will adjust.

We'll see about adjusting the parameters then.

According to Brandon Turner's Rental Property Investing book (as well as other articles I've seen online), part of the ROI calculation involves understanding your total investment amount, where the total investment amounts includes the following: down payment, closing costs, and pre-rent holding costs (mortgage, insurance, repairs, etc.).When calculating the overall return on a rental property investment upon selling, do you adjust your total investment amount for inflation?

You'll have to adjust along the way but the important thing is to get started.

So in summary, live where you want to live and invest where the risk adjusted returns for the strategy you are pursuing make sense even if that’s in two different states.

If it's long-term, you're going to have to adjust a number of your assumptions.

You invest and kind of forget about it, you check on it every now and then, sometimes you make an adjustment to your position, but you don't do a lot with it.  

Usually banks are not willing to make too many adjustments for someone they have not done a deal with in the past.  

As Paul mentioned, whether you plan to do so actively or passively, investing in multifamily will offer a greater risk-adjusted return and is much more scalable than other strategies.