Given the recession, I'm worried that investing in the stock market would mean I might take a loss if I have to sell stock in order to fund a real estate investment.

Even if there is a loss.

Claim the legitimate losses on your taxes, probably won’t be much but hey it’s something.

That might also make it attractive to insurance providers who put up homeowners who suffered a loss.

Per your description of this loss, it seems to have been an unfortunate accident from what I can tell. 

If you give them advice and you are wrong and they get a giant tax bill they will likely be very upset at a minimum and possibly file a lawsuit if the loss is big enough.However, having said that and giving the obligatory warning that I am neither a CPA nor attorney I will say that my *personal* understanding is that if it is an installment sale and it was NOT their primary residence, i.e. it was a rental property they will likely have to pay recaptured depreciation (all of it) for the tax year of the sale.

However, since you can pick them up for a song, if one or two deals goes bad (which will happen) then you're not losing your shirt and hopefully the rest make up for the loss.  

It's a bit more but I don't have to worry about a claim not covering a loss.

Also having a wide set of skills in home renovation, he knew what to do in terms of repairs that 99% of realtors would be at a total loss.

You take a risk which could result in cancellation of your title insurance and complete loss of your real property without compensation in the event that a title issue regarding your real property arises.)."