Just eat the loss and take care of your good tenants.

All you need to find is a $10K mistake in your renovation numbers and your margin is gone or you may end up selling for a loss

This could save your business from catastrophic loss should something bad happen.You can check out their website, or search YouTube for Clint Coons and watch some of his videos to see what they're all about.

FYI: I'm a conservative investor and will not risk the loss of my principal. 

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) yearsCalculating Effective Rental Income � Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income after averaging the reported net rental income/loss reflected on Schedule E of the tax returns.� When calculating the average net rental income/loss, any depreciation, mortgage interest, taxes, insurance, and HOA dues reflected for the subject property may be added back to the net income/loss.� If the borrower has owned the subject property for less than 2 years, rental income/loss must be annualized for the length of time the property has been owned.

The partnership membership will share profit, loss and so-forth.

Reason I ask is because what would happen in the event that after the LC was executed, the tenants were to completely trash the property (or some other scenario causing extreme property damage) and the expenses to repair would be so high that it would not make any financial sense to repair and re-rent out, and so the new owner decided to cut their losses and strategically default? 

The reason I ask, is that the more rental properties your acquire, the more likely one of them will eventually have a temporary large financial loss.  

Cash was king and many deals were suffering from a equity loss due to the financial markets.

Since you are lowest on the capital stack you are in first loss position.How fast you have to make a decision on this is also key.