After several years of hell he intimated to me that when he finally unloaded them his losses were close to $85k but I bet it was much higher.

Supposedly the next items for him were to be a new water heater in about a year or two, and some carpet...ill verify tomorrow.So help me understand “spread,” and what I should anticipate?

It just means lenders see risk on those items and are not willing to give them a valuation at par. 

Let me count the ways:1) Licensing and Entity Set Up2) Establishing Proper Bank Accounts3) Creating a Phone System 4) Having no PM education or experience5) Accounting6) Marketing - Of themselves and the homes they manage7) Application handling with screening8) Lease execution - minimal understanding of how to fill in a lease9) Tenant laws and regulations10) Tenant relations11) Maintenance (I should say that 5 times)12) Make Ready issues13) Security Deposit Itemizations (the most expensive failure you can quantify)14) Failing to seek advice or education 15) Service Animals16) Fair HousingI could go on, but one of the biggest and would considered the "umbrella".....is not providing a quality service to their owners and tenants. 

That is a healthy loss to take when someone also needs money to get into a new place to live at the same time.

If you can't afford the down payment, what will happen when you a big cap ex item arises? 

So if all hell broke loose, all I'm losing would be the original 20% + time + Headache + Uncalculated rehab cost, which is still somewhat a acceptable loss in my current stage in life.

Especially if the tenants have small children, you have to clearly communicate what items are forbidden to go down the toilets (baby wipes, bleach cleaners, etc) and let the tenants know if they plug the system they are responsible for having it cleaned out/pumped. 

A big financial hit personally (to the tune of $15K/mo), or a hit to my excellent track record (which facilitates my livelihood) and a loss to my investors.  

You would then use this account for your credit from the above transaction.Make sure it's not included with your other expenses because you want your Profit and Loss to look like this:Income  xxxExpenses xxxNet Income xxx  <-----  This number is still really important to keep track ofNon Taxable Transactions xxx <----- This number will need to be added back to the Retained Earnings number as a manual adjustment on the tax return, if this is a multi member LLC, S-Corp or C-Corp. for each year going forward.