Can it be done....yes, but the risk / potential to lose a boatload of money is greater.For starters I would completely gut the house to the studs to ensure I find and treat any potential mold issues and electrical issues.

@Duke Giordano @Christopher Nemlich @Rick MartinSome operators will be upfront about this and they will say: Treating distributions as return OF capital is good because return OF is not a taxable event whereas return ON would be.

Telling us how to survive and treating our lively hoods should be a crime in its self. 0The elephant in the room is tenants who have no issue making rent taking advantage and just stop paying.   

At a later date, if we want to cash out, we can sell the note to a note buyer.Here's part of our strategy:  For the long term, when we do a buy & hold, I treat it as though I'll hold it for as long as I live... 

In you case its a single family so as a courtesy I would treat it for the mouse issue once then notify the tenant that a. when she moved in there wasn't a mouse issue, and b. she is responsible for any issues moving forward.

It can be treated as one identification for the 1031 list. 

**The second month they demanded we fix $75,000 worth of “repairs”, treating our home like it is a HGTV makeover episode and showing no end to their demands.

Inspectors like to see that.All in all, you cannot expect a tenant to treat your property better than it was at move-in.Dirty walls, messy paint, jury-rigged things just invite people to not give a hoot!

If you are not sure about #2 it would be a good idea to have an operating agreement that spells out how you are supposed to treat taxes, legal matters, exiting the partnership, etc. 

Your contractors will be the lifeline of your business, so treat them well, that's the only way you will have any sanity!