Laws are now passed that prevent you from renting to yourself and claiming all the losses.

The conversation, as well as this decision, left me wondering how many insureds are denied policy coverage and cannot afford to bring a suit against the insurer and are unable to recover their loss.

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.

If you want 100% of your investments in public equity, that is fine and you will reap those rewards or suffer those losses.  

Without a permit, the rental income might not need to be reported, but this approach risks legal issues, loss of tax benefits, and complications during audits or resale.

I wouldn't worry too much about it, if you have a competent CPA or bookkeeper they should be able to review your books and within minutes have a strong grasp on who gets a 1099 (spoiler alert, not every contractor gets one, I'll be annoyed if I get one since I'm structured as an S corporation) and the amounts to report.1099 filings are usually a loss leader for us, so if you're working with a professional make sure you take advantage of them filing everything for you.

I am not sure if it was just my market or more on their end but at the end it was a pretty big loss for us, so we cut it. 

I have seen it too many times where an investor will buy an older property or even a new build, they net cashflow similar to you for a year ($100-$200 per month) and then a $5,000 repair or insurance/tax hike here hits them and it's a loss - they either get forced to sell or are majorly setback and unmotivated. 

Which is why the "it works" forces point to it working and the "its bunk" forces can show that it is not magic, it is just paying more each month.It "works" because people don't realize they are actually causing a loss aversion reaction in themselves.   

Realistically, many properties that go to auction may be in such bad shape that they don't justify the high bidding amounts, leading to losses as I mention above.