Demand that the lender give a loan for the sewer repair, just to avoid a foreclosure and certainly high loss on the mortgage loan. 

Time is money in rentals and every month is a loss.

Would you feel comfortable sharing your approximate "loss rate"?

You likely won't be able to offset the rental loss with your W-2 income unless you can claim real estate professional status or operate it as a STR and self-manage it.The answer won't change even if you own the property inside of an LLC.Best of luck.

The thought is, if the structure is rebuilt, you would be in the same (or most likely better shape) than pre-loss.  

Another term for that is that risk of loss must have passed from you to them. 

I want a simple place to track my P&L's and tax implications like accumulated depreciation and tax deferred tax losses. 

@Ryan Thomson Sorry to hear about your loss.

For risker applicants, require a guarantor (who is not "judgment proof") to agree to pay for damages and unpaid rent.Unfortunately, you cannot eliminate all risks of loss, so there are times that a tenant may end up causing damage beyond the security or coverage you have to pay for damage, but the above items will help.

But if the loss was caused because of their poor workmanship do you want to have them redo it. 2.