While it is true that our median prices here are very high, there are though plenty of cheaper areas in the metro area.

How does buying a property from a distressed seller in a painful moment in their life, with cash, help them if you still got it real cheap and, more than likely, way cheaper than its current value even if it needs a lot of work?

It's actually cheaper or the same cost as a lot of alternatives.

Or buy Real Estate books on EBAY.com, just cheaper.  

Since you are going to need to replace boards even if you paint covering with something else may be cheaper. 

Keeping a good tenant and having no turnover is much cheaper than the extra $100 a month you think you will be getting.

I can buy cheaper houses here and get more rent - thought I am probably missing out on some nice appreciation with the Lakewood boom.

@Scott DoyenHere's the thing about the 2% Rule -- it's meant for $50-100k properties in much cheaper states than California. 

The big question here is could you take the post-tax profit from the flip (don't forget closing costs and realtor fees) and reinvest it into a cheaper house that will cash flow better than this one?

Which would still be cheaper than a conventional bank loan because of PMI.