Since title companies will not (knowingly) issue title insurance on short sale transactions that are transferred immediately to another C buyer, and transactional funding used to be used mainly for short sales, the quantity of deals available has decreased substantially.

On top of that, the quality of applicant has also decreased somewhat for these type of properties.

A personal residence will help decrease your tax obligations but you will need to get used to the idea that if you make money you will pay taxes and lots of them.  

Initially my equation was showing a decreasing CCR because my denominator was getting larger (principal payments) while the numerator increased only slightly (decreased outflow of cash due to smaller interest payments).

I became a real estate investor about 8 years into my insurance career and quickly realized coverage being offered by most for rehabs, rentals, vacant properties and notes was very inadequate. 

Are you saying that vacancy is higher when you first purchase the unit and then it decreases over the years? 

They did not understand what they were buying - inadequate due diligence was performed.The location of the property has such a huge bearing on the performance of the property (location, location, location!).

Second example: assuming that nothing brakes (which never happens btw) real estate market goes down, rents decrease, you will have negative cash flow.

Their suggestion was to turn the water valve down to decrease the pressure, which would also double the time it takes for the tank to fill.  

Sometimes when you increase term and decrease rate you can lower monthly cash outflow.The pros of this is it can free up your 401k policy loan(s) to reinvest else where and the cons is more leverage but, as long as you have enough income coverage you may or may not consider this.Advantage of 401k loan is it does not hit your debt to income ratios while restructuring your debt with out 401k loans does "hit," your ratios.