My rough estimate is that it will take around $60,000 to make the house right.The one thing this house has going for it is that it is in a very good location where there is a shortage of homes for sale.   

Better option would be for you at this point to get a concession in closing from seller for an amount given by a plumber as estimated cost of repair so that you can fix it yourself (have it fixed), so that you are in control of the work that is done and know it's done right to your satisfaction and isn't just another patch job to get the property off sellers hands and into yours for the least amount of effort and cost possible (this does happen often).Simple question with not so simple answer, sorry about that but hope that helps cover the bases.

For example, I've found a property that is distressed, and has an estimated ARV of 270K (3 family).

I just contacted a Denver abatement company last week.They gave me a ballpark (without inspection) estimate to remove all drywall of $10- $15,000 per 1000 sqft unit.They said for this age house it was likely in the wall texture, mud and possibly even the drywall itself

Then compare this with the estimates from two smaller houses, combined.  

That was the contractors estimate from the broker handling the listing.  

I figured insurance at $35 per month based on my agent's estimate on a simpler property and vacancy, cap ex, repairs at 7% each or $40 per month.  

This time I used 10% for repairs and capital expenditures) as well as estimated the water bill at $120 a month, insurance at $150 (I actually have no idea what insurance would run me) and garbage at $50 a month.

Then would you think it wise to further reduce the addresses by excluding any homes that do not have enough estimated equity (current est. value - loan amount)?

The estimates given for the repairs are just a guess.