The potential for loss of rent and damages could be way worse than the small price of vacancy.

You are already losing money on it so you should either cut your losses and sell or be comfortable losing money on a monthly basis with the expectation to make it up on the sale down the road (see you're in FL so you might need to wait a few years).

But at the same time I would like to be seen as a company that manages the property to my tenants to avoid unnecessary harassment.

If you can break even or maybe even take a small loss going the permit route, that is probably the most prudent option.

I assume you mean Return on Investment, like this:ROI = Net Profit or Loss/Amount InvestedI don't believe this is an appropriate way to evaluate a flip.

They follow state laws, or in the case of a VA loan, the borrowers entitlement will be reduced by the amount of the loss against the loan.

You are correct, All of the standard Market companies I contacted would not write the coverage with an open loss.  

W-2 income is similar to Retirement income in that rental losses can offset it if the rental activity is considered active.

To minimize my loss, I want to make sure that section 8 continues to pay me while she is in the unit till I get her out. 

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.While the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.