That interests me most because of the consistent cash flow it can produce. 

Look fwd to hearing how absentee letters produce.

I'm in the Bay Area which is arguably the hottest market in the entire country.Even off-market deals are going at a price which produces very thin margins.

First, I'd like to say how incredible this site is.

What every real estate investor needs to know about cash flow - Frank GalinelliThis book provides all the foundation needed to understand how to "properly" evaluate income producing RE investments.

Meaning light renovations at best.From what I've read, these funds are only looking to produce 6-8%, as they can borrow at ridiculously cheap rates; easy to see why they're bidding prices well away from the average small investor.

Hopefully the labor and materials were broken out separate in the contract - If he's already purchased $25K in materials, have him give you the materials and receipts and reimburse him for the actual cost of the materials- So, basically, once he produces $25K in materials, give him $25K for those and then pro-rate the labor bid based on the amount of work he's already completed and give him that amount.

Put the 20% down and make sure your rental income is producing enough for the banks to calculate the rental income minus the financing (75% of rental income - mortgage = added income).

Ultimately, your PPM should say something like "this is an incredibly bad investment and only an idiot would invest in it - you will lose all your money, etc."

We've used this MLS technique with incredible success:1.