You use your cost basis to calculate your capital gain (or loss) from the sale.On the other hand, carrying costs may be deductible but are subject to a 2% of AGI threshold.

That said, I tend to give the most recent landlord little weight for concern that they will be more than happy for a problem tenant to go somewhere else.  

I was also assuming that they would not be able to get the principal paydown as well.So if he paid 300k for the house and he pays the loan down to 250k, then when he sells for say 400k, he'll be able to keep:75k. (50k for principal paydown and 25k of the 100k that the house appreciated).I still say that the loss of appreciation is really a huge downside to this deal.

They may turn out to be wonderful tenants and you would have no loss in missing rents. 

I depend on the money kept by MSR to recover my loss due to vandalism and to support my family.

A lot of loan officers don't know to ask these questions in Hawaii and then at the last minute they find out it's in zone 1 or 2 (which Fannie and Freddie won't lend on) and the last 2- 4 weeks are a total loss.

Assuming 50% of gross rents to rent loss, expenses and capex, that puts my cash flow at about .5% of the purchase price per month -- or about 6% CoC return. 

But more often than not, it is cheaper and easier for landlords to just cut their losses and move on to find a good tenant who pays.

If you do the numbers, the speed and quantity you will be able to do using the partner trumps the loss of revenue due to the sharing of the cash flow.  

Increase retention (meaning up your deductible), but also look at things like putting on hail proof roofing, etc, or go uninsured and maybe increase loss control as well.