The most feasible seems to be in Escondido.

They will all fight for every cent they can get taking a loss on the debt owed.A lender or their asset manager for the loan would usually rather do a loan workout to get performing again rather than take a big loss with a short sale or foreclosure.

With the 1M in cash, I would need to invest in something else to make up for the loss of rent that I currently enjoy.Math question, how much interest would I need to earn to make this strategy worthwhile?

As for seller financed notes the good news is Dodd Frank is being deregulated and as for institutional notes it's a supply & demand equation with a big factor being jobs & economic growth, but there's always people defaulting due to job loss, divorce and medical.

And in my personal opinion, you should never bank on appreciation to cover your losses. 

Looks like a monthly loss based on quick numbers.

We just set up an LLC at the advice of my accountant so that our profits (and losses) are handled in one place, receive tax benefits, and come tax season, everyone can easily handle their share of income tax based on our (unequal) division of shares in the property (it's not split 3 ways).

They required 2 DE LLC's: LLC#1 my husband and I are 50/50 partners and LLC#1 is sole member of LLC#2 which will be the borrower for the loan and it is a disregarded entity.Since the expense has been incurred and we are set with another lender, and since LLC#2 is registered to do business in the states where the rentals are located we would like to use the setup.To date I am a Real Estate Professional, this is what I do full time and my husband holds a job.I believe that there will be no issue taking the loan to LLC#2, changing the deeds when the loan closes from us to the LLC and that income/loss will pass through to LLC#1.I believe that since LLC#1 is a partnership that again we still will continue to report income/loss to our personal return and I can continue to be considered a Real Estate Professional. 

Due to the size I do not think it would be feasible to have an onsite manger and that could land me in sticky situation.

This is probably a better question in the tax section, but if you meet the definitions of running a business, other than limits on claimable losses I don't see anything wrong with your strategy.