Let’s take the cash flow and subtract the down payment to get a clear view of costs.

The same logic applies as in the case of wholesaling a house: establish a stable value (provided you know how to do that), subtract buyer's potential profit (e.g. 20%), subtract rehab & closing costs, subtract your fee (1-3% depending on the size of the deal and the profit margin).

If I end up doing something more with the basement perhaps I will get flood insurance.I guess as a follow up question to yours.In getting an Umbrella policy would you get coverage for your Net Worth: Assets - Liabilitiesorcoverage for your assets, that includes property values without subtracting the loans.

(Subtract that from sales price toget loan balance.)How much are the monthly payment on the mortgage?

It looks like you're just subtracting your mortgage payment on your primary from the projected gross rent to come up with "cash flow" and not factoring in taxes, insurance, maintenance, management, etc. unless I missed something?

Then, I can subtract that as a capitol expense to calculate a more accurate ROI.

I technically need to subtract about $425 per month for vacancy, repair, and cap ex. 

From that value you would subtract your lease up costs and lost rents and any other costs to cure.  

You capitalize value and subtract the immediate repairs to arrive at a fair purchase price.The accrual numbers, however, are recurring monthly/annually.  

We will make about $9,000 so subtract the marketing cost of $1,150 we made a profit of $7,850.