This is a huge difference and makes all the difference when comparing RE as an asset class to equities.Am I stating the obvious or is this often not considered in public discourse on the returns on RE investment properties?

So the underwriter looks to see where you are now with ALL sources of income and debt vs where you'll be after the purchase  and applies their maximums appropriately.The brokers I have worked with would not allow the 43% DTI as in your scenario, @Justin R.So the key is to either buy a rental such that it does not send you over the maximums or reduce your other debt or increase your other income until the ratios work.  

I can support that my headache factor might be reduced with that option.

It's public record and I go once a week to the court house in the probate department and ask for the recent probate cases for the past seven days.

I suspect that it adds about 50% of cost to the value of the place so true cost is reduced.  

At least read the updated guidelines from 2012 from the CA Dept. of Consumer Affairs:http://www.dca.ca.gov/publications/landlordbook/catenant.pdf

There's a lot of potential in this deal if I buy it right, because in addition to negotiating down the penalty for the code violations it is also way over assessed, and I can appeal to the tax board to dramatically reduce the taxes because it is outside of the statutory 15% wiggle room they're allowed on the assessment value. 

Same old agent routine (because it seems to work I guess), tell the owner the inflated value "they want to hear", then start blaming the market and trying to reduce the asking price a couple of weeks after listing it.  

Therefore, there was a public notice and probably a hearing at the zoning board.  

Regarding the after pref split (whatever it is) is that additional interest so let's say they are making a 12% conc return instead of 8 and their principal stays the same or do such payments go toward  reducing the principal?