Purchase price: $242,500 Cash invested: $49,000 This is an older house, built well on concrete block, that is next door to multi-million dollar houses on the water.

Get the easy stuff first - rent roll and lease end dates, any bills the landlord pays - common area maintenance, maybe water, sewer, taxes, and insurance.

The main issue with rental basement is water if it has water issue usually it is a simple fix .Clean gutters ,discharge gutter  water away 10" away from foundation, make sure you foundation soil is slopped away from it .If you need to buy soil get a clay mix .Cut back any tree too close to the foundation look at the drip line that's how far the limbs are out from the tree .If all that is done still has water buy a sump pump  carry the water to day light away from foundation 10" to 15" .

Water services.

Have a salon with a water heater that was installed around three months ago, and the tenant has complained that it's having issues heating the water; I suspect it may be an electrical issue with the system. 

Water heater 12 years to replacement (may need some service before replacement).Recognize many cap ex items are years away.  

(Current cost to bring in water line is around $140k or a well starts around 40k with no guarantee of hitting water) What made you interested in investing in this type of deal?

This is my first extensively water damaged home that I may purchase.

Las night, she sent a text (along with a video) showing that the hot water doesn't come on from the kitchen faucet.

It's probably a vent pipe for a furnace, water heater, or something similar.