However, given the high asking price, I would lose an equity building short-term exit strategy.

I could lose that money.

Well, if you run your business into the ground and lose a pile of money - then yes, you will also reduce your taxes.

I am not rewarding bad behavior, I am trying to hedge against my investor losing more time and money. 

This creates separation between your personal assets and your business.For example, let’s say something goes bad with your rental and you get sued and lose.

Most of the excess in the numbers comes from wanting to 'err on the side of caution' since this deal looked really-really good. 

I tried to hire a lawyer but I could not afford cost of litigation, on top of losing 200k.Scamsters like these give bad name to RE industry and keep people like me away from investing in it.

Of course the property taxes would be excessive and would render rental calculations infeasible! 

Time can be the difference between winning and losing a deal.

@Michelle EisenbergNeedlessly Losing money everyday is always a legitimate reason to worry .