Building equity is not automatic...but losing it can be.

YES, you lose the revenue and the cost of running it, as well as risk of running afoul w the EPA or local government, and the eventual repairs/ replacement costs of the facility. 

Question 2If(or when) the appraisal comes in lower than $400k combined(lets say $360k) and so assuming the bank will now not loan $300k at 75% LTV per the AOS, would I be able to ask the seller to lower the asking price and if they don't (and I don't want to pay up the $40k difference), could I back out of the deal without losing my 12k total deposit?

So as long as you break even or don’t lose much and have learned something do what you want.

In general, if it's losing money from day one, I'd need a pretty compelling reason. 

I didn't want to lose earnest money so I justified the purchase mentally not the best idea I ran what if number based in what I knew and I tried to be really realistic about it.

At this price, we will lose (2.4M - 2.3M) + commission fee 5% * 2.3 M = 220K.

I'm confused on what to do with it, hold on for a few years more or risk selling it and lose a good tenant.

Even if at risk limitations reduce the amount you can claim in a given year, unused tax deductions will carry forward to the next, so it's a "use it, or lose it" situation.

Also hopefully I can lose the PMI once enough equity is built.