I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

Note: I personally don't want to pursue pre-foreclosures, it's tricky and too easy to run afoul of Loss Mitigation laws in MD. 

Every turnover will cost you money due to vacancy, Plus you run the risk of additional losses from unpaid rent, cleaning, and repairs.

This all comes down to how you're structured, how the flip cost were accounted for, if there is a partner (you mentioned "we").If it is an S Corporation and you "distribute" or "sell" the property to yourself, if there is any loss on value, which probably there isn't, know it most likely won't be deductible if it's a related party transaction.  

Flipping can be feasible in one area for years and be a total bust the next year when every project comes in at a loss.

Thoughts on (1) biting the bullet and starting the foreclosure process versus (2) waiting it out and trying to sell the property (at a loss)?

(A substantial drop in national savings rates from 4.4% to 0.9% raises alarms about future consumer spending capacity, especially as recession looms and job losses become prevalent.)

We will be leveraging the proceeds to jump in, but this time with a strategy that aligns to our vision.

The W-2 income does not limit your deductions.You are entitled to write-off as much as you want.The next question is, is the overall loss considered passive?

And if they're smart they can maybe get a tax break for it, if they can show a loss on paper.