The plan is to flip a property using an equity partner to provide the cash reserves and a hard money lender for the bulk of the purchase and rehab.We originally planned on all cash, in which case we would split gains/losses 50/50.

Everyone has set backs in their life (i.e. divorce, loss of job, death in the family, etc), but that's no reason to stiff you on money they legally owe you.Small claims is one option, depending on the amount and whether you think you can collect on a judgment.Another option is collections. 

Of course you can have a bad outcome and have to come up with money to leave in the property, but you need to have either a reserve when you start for any problems that may arise or an exit strategy (flip or sell unfinished and cut losses) before starting.About to jump into REI, so take my advice with a grain of salt.

Would you rather break even/ take a small loss cash flow wise to take the appreciation in the DC/NOVA area or prefer the A/B class tenants in the nice areas of Baltimore but not see much appreciation?

Your statement shows that while you learned "a ton", there's still another few pounds to learn ;)   The real estate professional status allows you to use net losses from your rental properties against your other income, including your construction income.

RE pro/passive activity loss rules (IRC Sec 469) have nothing to do with a home office deduction (IRC Sec 280A). 

@Kathy ZickenbergIt doesn't seem like your CPA is providing accurate advice.It doesn't matter much about the income tax rate of the state you plan to invest in.You live in CA which is a state with one of the higher tax rates.Furthermore, rental properties, will likely show a tax loss as a result of depreciation(not guaranteed, but likely).Good thing is that California is not a gross income state and they will allow you do reduce your taxable income from rental properties so long as you meet the AGI threshold(below $100,000 - $150,000 threshold).

They are avoiding you and don't want to pay and most likely will not pay.I will take the 'L" loss and make sure they are out in by the first and start over with new tenants that's a win... disgruntled inherited tenants could be a nightmare especially if they refuse to move and not pay.At least pass by and try knocking and try to make contact and introduce yourself.

If the rental space was physically part of the living area of your home, such as a spare room used rental room, the rental usage doesn’t affect your gain/loss calculations and will qualify for the full exclusion given the seller meets all other requirementsIf the rental space wasn’t within your living space, such an duplex with its own entrance (and kitchen and bath), or a working farm with a farmhouse on the property, then you have to take into consideration of the business use and you need to make separate gain/loss calculations for the business and residence portions of your property.

By the sound of things you would be filing LLC along with all your rental properties under SCHEDULE E.As a schedule C sole proprietor you are allowed to add back the following:-Amortization/Casualty Loss-Business Use of Home-Depreciation-Depletion-Total Mileage DepreciationRemember, LLC means you are Schedule E for business income.