I found a 3/2 house in a desirable area that seems like it could be a good fit. 

We each have different goals, different levels of income-replacement (or cash-flow) desires, different current marginal tax rates, and I think it all plays into a whatever strategy you employ. 

It is a highly desirable area and growing in population.

The less desirable neighborhoods are along Blossom Hill, Tradewinds old and cramped they are first and prices are leveling off.Next year, with mortgage interest rate changes who knows about future.

Without my wife knowing I contacted the bank and previous job's 401K, and wrote the owners the most powerful letter I had ever written on our desire to own that little piece of paradise.

I can console myself in knowing the lot is worth at least 2-3X what I paid for the property, so at worst, I at least got a nice lot in a desireable area,and have the option of replacing the mobile(the County allows anything 1976 or newer), placing a modular, or a stick-built on the property.

For instance, one partner has the ability and time to locate, fix, manage the property and the other has no time or desire but has the money.

The 50% rule simply says that throughout the United States, operating expenses run 45% to 50% of the gross rents.Here's how I would evaluate your example.Gross rents: $600Operating Expenses: $300NOI: $300Less $100 desired cash flowMaximum mortgage payment $200Therefore, with a 30 year loan at 7%, the maximum acquisition cost (purchase + rehab) would be $30,061.51 and as you said the max purchase price wouldbe $28, 061.51.Mike

Use some reasonable interest rate and whatever you want for desired cash flow and compute your price.Offer him a few options.

Because of the University the city will never really go away (fortunately).I've found a single family home that has been split into two units (upper/lower). 2 bd 1 bth in each unit in a very desirable part of town and still close enough to the University to be considered off-campus housing (after I leave and want to rent it).My intentions are to purchase and live in as a single family (for the sake of the credit) but keep the units separated.