I own an investment property that is now inhabitable. What are my options to stop losing money?

Due to the neigboring unit's overflooding, my unit flooded causing major mildew damage. The property is inhabitable and the area has rundown. I do not want to pay mortgage every month for a property I can not sell and can not rent.
I need to find the best option to cut this problem without losing anymore money or taking a big credit hit. I don't know whether to let it foreclose or pursue a deed in lieu of foreclosure because I can't keep paying for a dead investment.

You could sell it "as is" on real estate auctions in your area, LandTrades.com, Bid4Assets.com, eBay, etc. There are all kinds of avenues of letting go of this type of property. You should buy a book on how to flip property online, there are investors that are always looking for deals on flippable rehabs. See the book below on how to flip real estate online.

This is all part of investing. Its not always a perfect picture. Sound like you need to find the money to rehab the home to either sell, or get it rented again.
Good luck,
RE Agent,
Remax

inhabitable = livable
uninhabitable = not livable

Insurance should cover repairs to the property if it was damaged by the fault of someone else. Check with your neighbors insurance company. If theirs won't cover it, yours might.

Forclosure isn't very helpful to anybody. Your best bet (as suggested) is to repair the unit to get it rented again.

Where is it?

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Sue the owner of the neighboring units that caused the flooding. That person is liable for the damage.