While mortgage+ taxes may be similar to rent, you are not paying down the principal early on in the mortgage and closing costs on either end are likely to add up. 

With negative cash flow you have to continuously pay out of pocket for repairs or upgrades.

Depending on how far these tenants are lagging market rates for their similar size and condition of unit, you can be a touch more aggressive, but likely want to keep your rates $50+ below competition, so even if they are pissed they will start shopping around and realize they will still have to pay more and incur moving costs, if they choose to leave.

Unless companies set up new operations in the city creating replacement jobs, all that will remain are lower-paying service sector jobs.

I would then buy more properties and use that cash flow to pay off the 401k loan in time

If a seller has a very low interest rate and the buyer can pay more than what it is worth and have no realtor commission, so more goes to the sellers pocket.Subject to has been around for decades. 

Would you rather pay 5% tax or 25% tax? 

the period of time it was investment you will pay tax on. 

Would renters be willing to pay $2,600 a month, or would they be more inclined to purchase a home instead?

You have a lot of properties around the colleges as well that can be rented to students or since its next to a couple of Hospitals the Nurses, Doctors, and other medical staff pay good rents.