But Remember, those losses are carried forwarded and greatly reduce your gain when you dispose of the property. 

Trying to figure out how to build their capital account while reducing the pass through income. 

Is there other way to reduce tax on rental property?

This is the type of income that can be reduced (offset) by contributions to your 401(k) account and tax deductions.

This experience has caused trapped equity (Gross Yield was 15% at purchase but as property value increases, they've reduced to 9%).

Then when you sale the property , years down the road, the basis, which is essentially your purchase price or "principal" less the deprecation expenses prior to sale can be used to reduce the receipts from the sale.

I just have to document it correctly to prevent him from trying to argue that I agreed to reduced rent for the entire month.

The borrower must then qualify for the loan only using that reduced income.

The point of the complicated structure is to get flexibility and reduced costs (by way of avoiding full closing costs on each property), and also access to cash for quick closings and future access to the foreclosure market.

Take a top-down approach by considering the market fundamentals so you reduce your risk and increase your upside (cash-flow and appreciation potential).