I think you should look at your business in two ways: profit and loss part, and capital part.

They have a ton of money they have to put to work and are willing to take the loss for a number of years to offset their gains.

Vacant homes present many opportunities for investment loss.

I've put together a quick proforma and I wanted to get some (semi-)professional opinions.Case Study:Cash deal (no financing for purchasing/rehabbing)Asset ~$20,000; Rehab ~$3,000; Closing costs/fees ~$2,000Total out-of-pocket: ~$25,0002-3 Bedrooms, 1-2 Baths; Rent $700-$850Annual Gross Revenue: ~$9,000Property Tax ~$1,500; Property Insurance ~$1,000; Property Management ~$1,000; Vacancy Loss ~$1,000; Replacement Reserves ~$1,000Annual Operating Expenses: ~$5,500Annual Net Profit: ~$3,500Cash on Cash: $3,500/$25,000 = 14.0%Risk Profile:Rental properties in low-income areas carries the risk of vacancy, damages, delinquent payments, and evictions.Risk Mitigation:I see paying a Property Management company as being a great way to help with: sourcing the most reliable tenants, bi-annual interior/exterior inspections, and handling the delinquencies/evictions. 

I'm showing them their contractual "outs" so they can limit their losses.

My lease does have clauses that define Abandonment and that tenant will be responsible for any and all damages/losses incurred by me due to their abandonment.

Straight from the Fannie Mae Selling Guide - Verifying Capital Gains IncomeDocument a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D.Develop an average income from the last two years (according to the Variable Income section of B3-3.1-01, General Income Information), and use the averaged amount as part of the borrower’s qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.Due to the nature of this income, current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy.

So zero gain, small loss so far after almost a year.

Your walking into negative equity and a loss of 25k which I don't believe the smartest use of your funds.

In short, we work with our CPA and lawyer to hold everything in LLC's to lower personal tax liability, do the best we can within the boundary of the rules to have income qualify as passive, try to offset with book losses if we can, and 1031 when possible.I'm more than happy to share offline...