While no properties actually flooded, the entire area was a disaster - roads destroyed, rescues, loss of power, and loss of safe drinking water than lasted for two weeks.  

So that comes out to be $40K per home in the end.But during the DD, I've found instead of 40 vacant pads, only 35 vacant pads are usable, so there is a loss of 5 spaces for me.What is a FAIR way (to both sides) of reducing the purchase price to account for the missing 5 vacant pads?

As many STRs in the area, I have been dealing with cancellations and loss of revenue and will likely to do so for the forceable future.

The placed-in-service date can be any date during the year; it doesn't have to be January 1st.Regarding closing costs and other expenses, many of these costs are added to your property's basis and recovered through amortization over time once the property is placed in service.

How many times do you see in these forums the investor who got swindled out of $5K, $10k etc. seeking advice on how to recover?

Cut your losses and let it go to foreclosure!!

Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules.

They way full doc programs work is they use this worksheet: https://content.enactmi.com/documents/calculators/Form1038.C...This approach will allow you to add back the paper loss of depreciation, and add back mortgage interest, property taxes, insurance and any HOA dues. 

You should also be able to claim loss of rents if you have the correct type insurance.

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.