If you have a single member LLC that changes to a multi-member LLC, you may have a 754 adjustment for the increase in basis of the partnership assets.I.E.

After this adjustment, the expenses are still greater than the rental income (it's producing a loss).What I'm unclear on is if I can apply the loss as a Passive Activity Loss deduction against my W-2 income (I'm under the MAGI limit).

If we have the risk-adjusted returns, we can take more of the up side by doing a 50/50 split after pref.  

Good location, appreciation not guaranteed for the next several years.  895k asking price. 101k gross annual incomeExpenses: Insurance: $4,898Electric: 2,579Water/Sewer 5,085Fire Alarm Connection 708Property Taxes (if/when assessment is adjusted to sale price)-31,95130 Yr mortgage (20% down at 7.75%) 61,560Maintenance, Long-Term Capx, vacancy- 9,000 (this is probably a bit low)Total annual expenses: $115,781

Can you make a lump sum payment to the bank for the escrow shortage and then have the payment adjusted to account for the higher taxes, but not covering the additional escrow?

If you do that, they can adjust your escrows back to normal. 

If not, what do you need to adjust to get back on track?

If you realize profit, sales price - purchase (and some adjustments for closing costs and capital improvements), you have taxable income. 

I'd say this is still in beta.To be brutally honest, it's hard to see how a product like this will be able to compete with so many other well-established products offering nearly identical services out there.

There are far fewer ARM's (Adjustable Rate Mortgages) than there were in 2007/2008.