After 2 years I have had to replace very few items, whether that be from theft, loss, or over usage. 

And to top it off, the letter stated 'with capital up to $300,000' and found out from the SOW we provided to them for $65,000 in rehab fees, they were only giving us $40,000. 

We have some capital and are looking to possibly purchase a small hotel.

Is his capital only paid back when there is a "capital" event like a sale or refinance?

Then it shifted to more flips and rentals, with a lot of discussions on how to capitalize since the credit markets were frozen.

Assuming you are both working and the rentals are long-term, rental losses up to $25,000 can offset W-2 income if your MAGI is under $150,000, with excess losses carried forward.This post does not create a CPA-Client relationship.

If you find a seller willing to carry a note, you might be able to negotiate an arrangement that works without needing traditional bank financing.Another approach would be to partner with someone who has capital but lacks construction expertise.

Focusing on building knowledge, credit, and some capital is key.

However, my main question is how investors determine a reasonable target, especially since some investors with access to higher capital are able to target projects with higher returns than the easily accessible passive or traditional opportunities. 

When it's sold it will be taxed as capital gains tax and may also have some unrecaptured depreciation which is capped at 25% and  recaptured depreciation as well which can be up to your ordinary income tax rate.