The cost segregation study generated $80k in passive losses, meaning a portion of that would be recaptured as ordinary income (at a 25% federal rate).

So that first year may be a 2 to 3k loss or break even unless he gets lucky. 

Also loss history can play a significant role. 

While no properties actually flooded, the entire area was a disaster - roads destroyed, rescues, loss of power, and loss of safe drinking water than lasted for two weeks.  

So that comes out to be $40K per home in the end.But during the DD, I've found instead of 40 vacant pads, only 35 vacant pads are usable, so there is a loss of 5 spaces for me.What is a FAIR way (to both sides) of reducing the purchase price to account for the missing 5 vacant pads?

Cut your losses and let it go to foreclosure!!

Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules.

Paying above market to gain other benefits is sometimes a difficult pill to swallow, but for the unbiased investor looking for the best” ROI the risks and rewards must be analyzed rationally.  

They way full doc programs work is they use this worksheet: https://content.enactmi.com/documents/calculators/Form1038.C...This approach will allow you to add back the paper loss of depreciation, and add back mortgage interest, property taxes, insurance and any HOA dues. 

You should also be able to claim loss of rents if you have the correct type insurance.