If I was in your position I would try to get some extra $$$ and explain that you are going to have to replaced XYZ when/if she moves out and you need to cover that loss.

I was devastated by his loss.

Thank you Jerry, awesome reply.For all, lets pretend attorney's don't exist, there gone, they all loaded up in the caddy and drove off a cliff, and we are all mourning the loss of a great Cadillac, ok.

Loan losses aka defaults or late payments can make a significant dent into your profits.

Worse still, if you experience another loss in the near future and make another claim your insurance company may drop your coverage.

If not;  they are probably not losing enough heat to make insulating them worthwhile.Thanks Stephen - yes, they do feel warm, so I'm sure I have some losses.  

There are some policies (I forget which ones off the top of my head) that allow you to sue the tenant's insurance company for damage or loss arising from the tenant's misdeeds.

If you can't do that, I'd say you got an expensive experience from your loss as to dealing prudently.

you can always 1031 exchange the property for a new one and keep moving up from there. you can also take your profits to invest in a buy and hold and then use the losses at tax time to offset the gain.

Pete, your three justifications aren't necessarily true or prudent, your "investor" is in at 100% LTV, being fully leveraged is a concern when you have vacancies, what happens if you have an insured loss where the property can't be leased, loss of rents doesn't go forever and may be lower than actual rents?