They couldn't get a construction loan and were constantly blaming the cities being tough on their permit process.

Tough to answer due to so many feelings about risk tolerances and what other investments could be making you as a ROI.I feel leverage of real estate is the real strength of this asset.  

However, the tax treatment differs between short-term and long-term rentals:Short-Term Rentals (STRs): If you materially participate (work 100+ hours and more than anyone else on the property), you may be able to offset rental deductions against W-2 or other active income, offering greater tax benefits.Long-Term Rentals (LTRs): If your AGI exceeds $100K, your rental losses may be limited, unless you qualify as a Real Estate Professional (REPS).If you plan to expand your rental portfolio, consider an LLC later for liability protection and easier management.

If this stretches to 9–12 months, holding costs could climb fast.I like your point about tightening the rehab costs, I think there’s room to bring it closer to $100K with the right contractor and materials.

Although, it's very capital intensive and you have to rely on a lot of factors you can't control, contractors, interest rates, market shifts, realtors, buyers, appraisers, inspectors, material costs, weather etc etc.

Property is 3021 E Shangri La Rd, Phoenix, AZ 85028.I hear you—this sounds like a tough situation, but you still have options to minimize your losses.

If it is a high end housing product you may have to use a designer because they have access to some material/finish suppliers that are otherwise unavailable but that tends to only be for the highest end housing deliveries.

I tried to put the pieces together to build a solid team out there but it's really tough unless you have someone local to help you run it or are willing to drive back and forth.

That will increase your material costs for the job and is the contractor paying for the material in their bid or are you paying for it and paying them a labor cost.

My past clients were in a tough spot and needed to sell asap.