My new  tenants upstairs apparently brought in a "portable washer" which has leaked into the downstairs unit - destroying the tenant's bed and TBD on the rest of the damage.

The "carry trade" is sexy until it destroys your balance sheet.Short term, high value add deals that you can refi would be my strategy although in most cases  I wouldn't risk my home to do it.If you can live with a permanently higher payment then do a cash out refi and keep your powder dry for the opportunity with solid yield.If I sound like I'm speaking martian right now then don't move forward!

yes start eviction so you can destroy their credit.

Sure, you might (despite vetting) get a tenant that destroys a unit for $5K.

 Here in Santa Rosa we just had a terrible fire that destroyed many houses so all the ins and outs are being broadcast and published. 

Also the agency can kick out the tennant if they are acting up, destroying property or arent paying...which if thats the case, im still getting my contracted amount and they would have to fix damage. 

Also, I'm fearful that once we raise rent tenants may further destroy the property.

That said,inflation will destroy the purchasing power of the dollar.

If you know the source and have a solution to fix it  get some 24 inch waders and a powerful flashlight and walk through the basement see if there are any obvious foundation issues.8 inches of water in basement will typically destroy your furnace and your hot water heater and most things sitting in the floor, but if you budget for those you should be good. 

If the latter, then I'd give them notice and hope they won't destroy anything else.