Where the parties to a venture join together capital or services with the intent of conducting a business or enterprise and of sharing the profits and losses from the venture, a partnership (or other business entity) is created.

Jeff,I would suggest another questions/request for info to add to your due-diligence:    "have there been any claims reported to you, submitted to the Insurance carrier, or that you are aware of, during the past 5 years"I would also suggest that you request that they get the "Loss Runs" (report of claims) for the past 5 years from the current owner. 

when she moves out, would it be best to, ask her to replace them with another pair of used machines that work or just take the loss.

In addition to the response above, any excess losses incurred can be used to offset other similar types of passive income. 

Losses, including carried forward from RE (tax form 8582) can be used to significantly offset roth conversions in early retirement if you keep income under the threshold. 

You will also need knowledge of the game and the areas you choose to lend in, not knowing your areas or having someone on your team who does could spell a loss.

And their roof loss settlement is "variable by roof age", not actual replacement cost, nor depreciation adjusted (most insurances will hold the depreciation portion of a claim till the repair is done and only then release the funds).Make sure you compare apples to apples when shopping around, pay attention to what they give you for "free", what deductibles apply and when exactly you can get coverage from the insurance and to what limits.

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

Please keep in mind, you may qualify for the 750 hour test for real estate professionals, but need to materially participate in the rental activities as well for it to be considered active (and take the active losses). 

Lower risk, lower reward.Flipping by yourself or with a partner is more risk, more potential reward(also more potential LOSS).