We managed to pay off the loan by 2005.We bought our second rental in 2005, after taking out another equity loan on our primary, and again - - paid our "normal" mortgage payment, applied the rental from rental house number one towards the equity loan, made the normal equity loan payment and applied the monthly rent from rental number two towards the equity loan.In 2006, we bought yet another rental - using an equity loan on rental property two.That loan we threw the monthly rental money of the unit at.In 2008, we had paid off the note on rental number two and began throwing more money at the loan for rental three.In 2009, we bought rental number four and paid off the loan on rental number three later that year.In August of 2011, I retired from my job as a computer network engineer/database administrator at the age of 59 1/2, and began to withdraw money from my IRA & 401, using the losses on the rentals to offset the taxes on the IRA & 401 distributions.I had to use trial and error to guess how much to withdraw & be on the safe side as far as taxes go. $40K per year is roughly the "sweet spot" for that if you have 4 rental properties in the state of Ohio.

If you're house flipping, and the house is 50% complete you'll need to add more money just to finish, which will likely push you from a profit into a loss.3.

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) yearsCalculating Effective Rental Income � Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income after averaging the reported net rental income/loss reflected on Schedule E of the tax returns.� When calculating the average net rental income/loss, any depreciation, mortgage interest, taxes, insurance, and HOA dues reflected for the subject property may be added back to the net income/loss.� If the borrower has owned the subject property for less than 2 years, rental income/loss must be annualized for the length of time the property has been owned.

If they fit the definition of a "real estate professional" not only is one allowed to deduct ALL expenses in the current year and will no longer have to carry over losses that exceed their income over the years as with passive income, but, if married and filing joint, they may even deduct their expenses against their spouse's income as well.

If you guys were in my position would you take the monthly loss or just sell it and take the hit on the sale?

The lender will give you instructions for how your insurer should name the mortgage loss payee in your policy.  

It sounds like you will take a hit, and are prepared to, but it may not be a complete loss.

The wasted money is the money you put down to avoid something that is not costing you as much as the loss of earning power on the down payment will.

Only then could you claim unlimited deductions for losses.

If needed I could use the equity I built up in a property to cover it, still the loss of an amount equal to gross rents for 3 houses for a entire year is an unpleasant thing to consider.This brings up a final thing I think all investors need .... resiliency.