He seemed very knowledgeable and worth the call. 

Not that I want a "short work around", it's the point of why throw my dollars away when I already have all the resources and knowledge to do it myself? 

I have no idea what the tax code says, but I've seen people write this off on Schedule C with no subsequent audits to the best of my knowledge.

Thank you @Aaron Wade, as a young aspiring investor I definitely would possibly like to learn more from somebody who has the experience and knowledge.

It has no bearing on what price the lender will agree to.Points to know....First, use an Experienced short sale Buyers agent....there are just to many things to look out for in a short sale.Find out how many mtgs/liens are on the property....many times a buyer has to pony up extra money to satisfy a junior lien holder, above what the first lender will offer them.Assuming all paperwork’s has been submitted, expect 30-60 days for bank to do a bpo and accept=counter your offer.Submit a gc repair estimate with your purchase agreement.If the comps are $200k, you’ll never get it for $80k unless there is a serious documental $100k problem with the property.

We'd still be paying the $137/month in PMI (which kills me to think about the waste of $42K over the life of the loan) and only be paying interest payments unless we can afford to pay extra for principal.

Whatever you offer is cash in his pocket vs losing it to an inevitable tax lien sale = no cash & eventually no where to live.Most of these 'people' are oblivious to any knowledge of financial security so I'd find out what he would take to just walk away flush with cash.

I am talking with a lender referred to me for his knowledge of a 203k loan, but want to gather as much information as possible.1.

Unfortunately, the part is no longer made by the manufacturer and I haven't been able to find an extra part "laying around" via the Internet. 

@Matthew McNeilI would add to your requirements that the Investor does NOT need the cash flow.If they need the cash flow, then this will NOT work for them.This narrows down the kind of Investor that should follow this strategy.The only added Caveat I would say is that I include your JOB as a cash flow.So if you are making a lot of money in your profession, then how is an extra $100 per month or even $1k per month going to somehow help you?