Can you afford the monthly losses of an extended vacancy?  

I get that the ability to deduct passive losses phases out completely over 150k and that they carry forward.

If I buy this property at $75K, put 20% down with a conventional 30 yr, and achieve $1k/mo in rent (which is what comps for this type of property)... the following #s is what I see at a high level:- Principal & Interest: $293/mo-Tax : $150/mo-Insurance (est): $50/moTotal PITI: $493Est Expenses (50% Rule): $500-----------------------------------------Total Expense + PITI = $993/moIncome ($1k rent w/ 9% Vacancy Loss): $910/moCashflow in this scenario is negative.. with 1.3%  rent/price ratio.Even with a sales price of something like $55K (1.8% rent/price ratio), this doesn't cash flow.Now with the same above scenario, using est 30% expense assumption cashflows $180/mo.Am I being too conservative on expenses for a ~1,200 sq ft. brick bungalow ?

Or would I need to cut my losses and just replace them all?

If you are located in a stable market with no population loss predicted in the next decade (us census has very detailed and very educated forecasting models for most zip codes)then each month your tenant pays down your mortgage will count as money in your pocket.

You use your cost basis to calculate your capital gain (or loss) from the sale.On the other hand, carrying costs may be deductible but are subject to a 2% of AGI threshold.

I was also assuming that they would not be able to get the principal paydown as well.So if he paid 300k for the house and he pays the loan down to 250k, then when he sells for say 400k, he'll be able to keep:75k. (50k for principal paydown and 25k of the 100k that the house appreciated).I still say that the loss of appreciation is really a huge downside to this deal.

They may turn out to be wonderful tenants and you would have no loss in missing rents. 

I depend on the money kept by MSR to recover my loss due to vandalism and to support my family.

A lot of loan officers don't know to ask these questions in Hawaii and then at the last minute they find out it's in zone 1 or 2 (which Fannie and Freddie won't lend on) and the last 2- 4 weeks are a total loss.