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. 

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.

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. 

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).

Perhaps there's a way for her to convert this house to either her primary residence (For 2 years) or rent it out and use it as an investment property so she can get more creative with the sale of the property to save on some taxes.If this isn't possible she'll want to try to offset some of the gains from the sale with capital losses as well as using any improvements and selling costs to lower her capital gains.

. - not my first choice, unethical, needs cashb) Get to do a 13% or 19% rent increase if rents haven't been increased since May 1977 or May 1976, respectively - I will find out if there are records going this far back in due diligence phase, if offer gets acceptedc) Operate with a loss or very low NOI for 1 year, after that we will be eligible to apply for a Just & Reasonable Rent Adjustment. - with this, we can potentially increase rents by up to 145% depending on a comparison with baseline 1977 level rent amount.I have 2 questions:1) If there exists these 2 other, legal ways to increase rent in a rent controlled area, why does it seems like the only option most investors consider is cash for keys?