Let's say renovations and capital expenditures are completed by year 2 and the NOI increases by 6%, then Year 2 NOI is $1.06mm.

Every property is different, but in general, I will always ask for T12 financials, rent rolls, a list of repairs and capital expenditures in the last 2 years, and needed deferred maintenance. 

After property taxes, insurance, and 13% for repairs and capital expenditures, the property produced a substantial cash flow.

Being a simple brick ranch it appeared to have low long-term capital expenditures.

I'm not trying to discourage you; just saying make sure you consider these things as well.Also, make sure you've included intangible expenses, i.e. capital expenditures or property management (even if you are managing the property yourself).

Add the expenditures to your cost basis in the property so you can recover them when you sell it.

Does your $700 monthly cash flow include ALL expenses including mortgage, insurance, taxes, repairs/maintenance, capital expenditures, property management (if needed), etc?

I also use the term books loosely, because all the record keeping that has been done has been running the income and all the expenditures in a single bank account.

Meaning I can likely afford no more than a 200K home with limited rent-ready capital expenditures.

Correct me where I am wrong here Greg, but essentially a Capital Expenditures type of calculation for the major systems of the house?