Would depreciation on the equipment lower your taxable income, or do you already have tax losses to offset?

If the annual appreciation far outweighs the annual cash flow losses, it may be worth holding. 

The depreciation, repairs, and mortgage interest from the property renting will surely create a paper loss and help our somewhat high salary’s tax liability which is great.With the same thought, selling would do the exact opposite but would leave me with a chunk of change in my pocket.

Between now and then you can really crunch the numbers on rent vs. costs and decide how much negative you can stomach....at worst you still decide to sell in the spring and maybe it's a $40K loss instead of your current estimate. 

This can protect your other investments should you have a loss in one.

Should I have a family member live there at a loss each month?

It would be an improvement over paper as money, but there would be tremendous loss of privacy. 

@Kameren Powell I’ll try to save you from financial loss.

Does HOA have loss of income insurance or some fund to make up the losses until owners get property rehabbed or built?

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.This example shows that while the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.