If it is found that the tenant had sabotaged and caused the flooding - who is responsible for the flood damages and the loss of my property valuation owing to this?

If you are over for a bill period it's likely minimal and then tenant can probably absorb that amount in the monthly payment.

If you can manage a loss out of your own pocket, you always want to consider that route first. 

This implies that you cannot simply calculate a reduction in rent for the loss of the garage.

If your house is a 1950s with minimal updates in a C/D area, $800/month is not unreasonable given the 1 bathroom and lack of updates. 

Say you do all this, and thanks to depreciation you end up with a loss, but you don't see it anywhere on your tax return.

@Ross ShivelyConsult with a CPA.Doing a 1031 exchange and then immediately selling the property will not free you of paying taxes(Capital gains tax, depreciation recapture and state taxes).Might want to see if you have some suspended losses to offset the gain.Best of luck

For my underwriting I use a fixed percentage for replacement & repair reserves as well as vacancy / credit losses so this helps me to envision what the property will do in the event of a downturn.

It just provides an easy way for you to recoup some losses.

You could add a couple hundred dollars income every month with minimal effort.