For example, when purchasing a single family home or duplex as a rental, maybe you want to mitigate risk by reserving funds for capital expenditures and vacancies!

Can he get his daughter to the good schools in 1-2 years and keep the current house as a rental without substantially increasing his monthly expenditures?

If you decide to 1031 then the bulk of your expenditures to put the property into service  will be capitalized. 

Well, a few terms need correcting.Cap Ex = Capital expenditures.

Ask him how he wants the expenditures to be segregated on the contractor billings. 

One thing you are missing is Capital Expenditures.

Keep it simple with four columns: date, purchase type, income, expenditure.

Do they prioritize rent over all other expenditures?

I mean the equity is yours and will be able to cash out upon sale.In it's simplest form cash on cash is simply the cash return each period divided by the cash invested.The mortgage payment is a cash expenditure and I certainly include it.

And I also recommended that the rental leases on these homes be at lease 5 year leases in exchange for this long term agreement, if the renter is paying on time they have this reported to the credit burial.