AS we know failure to pay tax or insurance is an event of default so one can quickly move against the asset if the borrower is not adhering to the terms of the DT / Note.

. $10k in losses will reduce the federal tax due by $1.5-2k.However, the state tax due gets lowered by a very small amount by using passive losses to offset passive income as I assume state tax rate is quite low (I live in TX, so never worried about state tax) compared to long-term capital gains rate of 15-20%.

Typically, in this situation, I advise my property management clients (in Florida) to terminate the month-to-month tenancy of a tenant who is causing problems like this and to place a better tenant in the unit.As for the tenant who is requesting to get out of their lease, of course, you do not have to release them from a lease term on that basis, but look to your lease and state laws regarding their ability to terminate the lease (whether a lease term or month-to-month).

I’d look at it another way figure out where you want to live and than figure out if house hacking is a way to afford that area and if you have a long term plan to afford that place with at most one roommate, you will find it hard to break even much less make money house hacking anywhere in the region so may as well buy in a place you want to be long term, if your not ready to commit at least medium term, rent.

I keep wondering about insurance, vacancy rates, if tenant selection is a bigger/ different factor, terms of the tenancy and differences in opex and capex? 

We have used over a million dollars from investors in the past for individual deals, but ever since launching the fund it has become extremely hard to raise money compared to past deals, but we changed our terms to be more favorable to the LP’s. 

@Sebastian SoveroThere are 3 main parts to a seller financing deal: down payment, interest rate, and price (4th would be the term).

Terms were not to turn the units and leave them vacant for the new owner. 

Passive income is something talked about, but the majority of real estate investing is far from passive and what is called passive has payments for the passivity (management).Your why is strong, to provide generational wealth for your family and likely achieve time freedom long-term, that's awesome.

Make sure you feel comfortable with the lease terms in case someone does need to be evicted and review the policies of Oxford House or anyone else you might rent to.