You said that you added the Raid1 from the command line. What command did you use? You absolutely can use local storage for VM’s it just sounds like you might be going about it the wrong way.
Assuming you have Xen Orchestra installed…
If you go to home > hosts > your host > storage
Do you see your Raid1 device in use?
If you do then you should be able to select it, goto disks, + New Disk, make the disk, then goto your vm and attach the disk.
If not then you need to create a Storage Repository. If you manually partitioned, formatted and mounted the disk, then added a folder within it as an ISO store then the same (ish) process might work to add it as ext(local) but maybe call it “VM Storage” rather than “Nextcloud…” as you will be using that for all VM’s that need a disk. Be aware though that this is not a “normal” way to do it (IMHO).
If you are able to, I would remove the ISO storage in XO then unmount and remove the partitions, then make a new partition using only the size you need for ISO’s (100gb maybe?) and another partition using the remainder of the disk. Format and mount the first partition and add it back via XO as ISO then add the second partition (no formatting or mounting required) as an ext(local) via XO.
Remember to add the ISO storage to fstab and you will need to reboot before the “proper” size shows in XO
You could checkout this video that I made which covers most of this. It’s the second time today I’ve posted this in an answer! perfect timing!!!