., origination fees, commitment fees, lock-in fees, appraisal, credit report and flood certifications), or a cash advance taken by the Borrower on a revolving credit card account or an unsecured line of credit to pay these fees may be used as an acceptable source of funds and may be considered Borrower Personal Funds as described in Section 26.2(a) if the following conditions are met:The maximum amount charged or advanced may not exceed the greater of 2% of the Mortgage amount or $1,500The amount charged or advanced must be included in the Borrower's total outstanding debt and the repayment of such amount must be included when determining the Borrower's monthly debt payment-to-income ratio as described in Section 37.16The Borrower has sufficient verified funds to pay these fees (in addition to the funds needed for the down payment, Prepaids/Escrows, other Closing Costs, Financing Costs and reserves as required); however, the Borrower is not required to pay off these charges at closingRefer to Section 17.38 for instructions on delivering Mortgages where Borrower uses a credit card, cash advance or unsecured line of credit to pay fees associated with the Mortgage application process."

I don't believe pre paid rent is really a protection as some do, I just see it as kicking the can down the road. 

Cash on Cash return seems low at ~3.4% which includes prepaids for property taxes.

Many today are requiring 3-6 months of prepaid interest.

My initial analysis showed that this should cash flow $300 per month with our initial investment of $21,000 (25% downpayment plus closing costs and prepaids).

.  ~$11,000in closing costs: 4.4% points ($4,500)$1500 underwriting and processing$700 appraisal and credit report$1300 in title related charges$1000 in taxes$1300 in pre-paid$800 in escrow

William Bannister is absolutely correct.Here's some examples of tax sale properties that I've seen:bottom of man-made lakeside of cliff 50 feet tallArmy bombing rangeExpired land lease for river front cottage totalled by flood 30 years agoExpired lease for TV tower pre-cable, that was already removed from propertyLand only with building owned by another party who had pre-paid their lease for 30 years, so if you bought you would start collecting rent in 3 decades.super fund toxic waste siteAbandoned gas station with leaking under ground tanksAbandoned steel millhouse with only 3 walls as the rear wall collasped into back yardhouse on city demolistion listStrip of land 2 feet wide, left over from road widening projectLandlocked residual land from highway projectAbandoned QuarryAbandoned junk yard, various colored ground stains from antifreeze, gasoline, oil, automitive fluids and metal parts.Slag pileChromnium factoryAbandoned building filled with 55 gallon drums of unknown liquidsRavinesWetlandsFlood waysDrainage ditchesSite with endangered speciesGarbage dumpHave a nice day!

Your equation doesn't look like it includes closing costs either which typically would cover prepaid taxes, insurance, etc. 

Or, if you really want to be property - eliminate all prorations and prepaids from the settlement statement. 

It took 2 DAYS to get customer service to call me back, and everytime I have been on hold with them before this issue, it was 30-60 minutes on speaker phone.Anyone can go get a pre-paid card, put $5 on it, and use it on their website, show up at your place, and claim you didn't allow access, and then get a nicer place, with you being stuck with $1000's in relocation fees.