good luck... sounds like you have a pretty high bar to get across.sinkhole is  an insured loss  FYI I have funded well over 150 deals In Orlando last 3 years never lost a one.. but in reading our insurance policies if one got swallowed up then the insurance company owns it.there is no Utopia in rental house investing..

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) yearsCalculating Effective Rental Income � Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income after averaging the reported net rental income/loss reflected on Schedule E of the tax returns.� When calculating the average net rental income/loss, any depreciation, mortgage interest, taxes, insurance, and HOA dues reflected for the subject property may be added back to the net income/loss.� If the borrower has owned the subject property for less than 2 years, rental income/loss must be annualized for the length of time the property has been owned.

Consider the loss part of an education.

http://www.rentguardus.comThey provide tenant screening & rent loss insurance - 3 months rent for 1.75% of the lease value for tenants they screen\approve..A great idea and pretty good value if it's legit and their screening isn't too restrictive.

Our goal was to retire with as little loss in actual income as possible.

My question is, will an underwriter look primarily at my gross income or base their decision after looking at my losses on my return?

The saga continues with my rental property and we are at a point of trying to make a decision, which could be a big loss for us considering our current financial state. 

We managed to pay off the loan by 2005.We bought our second rental in 2005, after taking out another equity loan on our primary, and again - - paid our "normal" mortgage payment, applied the rental from rental house number one towards the equity loan, made the normal equity loan payment and applied the monthly rent from rental number two towards the equity loan.In 2006, we bought yet another rental - using an equity loan on rental property two.That loan we threw the monthly rental money of the unit at.In 2008, we had paid off the note on rental number two and began throwing more money at the loan for rental three.In 2009, we bought rental number four and paid off the loan on rental number three later that year.In August of 2011, I retired from my job as a computer network engineer/database administrator at the age of 59 1/2, and began to withdraw money from my IRA & 401, using the losses on the rentals to offset the taxes on the IRA & 401 distributions.I had to use trial and error to guess how much to withdraw & be on the safe side as far as taxes go. $40K per year is roughly the "sweet spot" for that if you have 4 rental properties in the state of Ohio.

If you're house flipping, and the house is 50% complete you'll need to add more money just to finish, which will likely push you from a profit into a loss.3.

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) yearsCalculating Effective Rental Income � Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income after averaging the reported net rental income/loss reflected on Schedule E of the tax returns.� When calculating the average net rental income/loss, any depreciation, mortgage interest, taxes, insurance, and HOA dues reflected for the subject property may be added back to the net income/loss.� If the borrower has owned the subject property for less than 2 years, rental income/loss must be annualized for the length of time the property has been owned.