I saw a lease loss opportunity on this one.   

That said, there are downsides:  potential losses, greater risk. 

This should cause just about all of that $2.4M loss to roll to 2018 as a passive activity loss carryover.Here is my question:   Let's pretend I cannot execute the 1031 exchange for whatever reason.  

The Partnership will then distribute a K-1 to each investor indicating his share of income/expenses.The great thing about living in Texas is that you may not be required to file a state tax return as long as the property is within a state that does not have an income tax(Texas, Florida, etc).If your adjusted gross income is below $150,000 - you can offset the losses from your rental(buy and hold) against your other income(w-2, interest etc).

The risk is a couple months of rent vs regular insurance which covers loss of the house or lawsuits both of which could be hundreds of thousands of dollars or more depending on the situation.

If the loss deal falls through, after you spent all the money, the capitalized cost is taken as an abandonment loss.

Like Nathan mentioned above, it's best to figure out all expenses (property tax, insurance estimated, cap ex, vacancy loss, management) before considering the deal. 

There are some cases you can argue it a capital gain, but since the short-term capital gain is taxed as same as ordinary rate, there is no tax benefit unless you have some capital loss that needs to use against the capital gain. 

Is it better for these investors to ride it out for 5-10 years with a good team or sell at a loss and reinvest their money elsewhere?

Note all investments, including real estate, carry the risk of loss in addition to possibility of gain.Investors who are retiring or seeking a life style change and would like to take a more passive role in their real estateInvestors who wish to consolidate their holdings of multiple smaller properties into fewer large properties for ease of managementInvestors who are seeking to diversify their real estate portfolio into higher quality investment grade real estate, but lack the experience, resources or capital required to manage or acquire larger institutional quality real estate.Investors who are in their 45 day identification period and are seeking a viable replacement property option to satisfy their 1031 exchange or need a backup option in case their primary property falls throughInvestors who have excess proceeds in their 1031 exchange and rather than pay the capital gains tax, would like to replace it with more property to receive 100% tax deferral.They are very hands off in nature.