But let's say she had shoved furniture into the attic, on top of the water heater pipes, that eventually leaked through the ceiling & created a repair that cost $500.

For example, when renovating our master bathroom, we decided to install ceiling lighting in the bedroom, which not only added much needed light, but also created an accent wall that makes our bedroom feel significantly more polished.

If you are a ultra conservative very low risk tolerant investor you could pay down a income property mortgage but that is obviously going to reduce your return on your investment to a ceiling of the prevailing mortgage rates.

Your pictures show the sheetrock has fallen off the ceiling.

Did the previous tenant damage the walls and ceilings, or where those pictures from during the tear down?

Sanded and restained all hardwoods, gutted small powder room, remodeled bathroom (besides shower), and ripped out kitchen vinyl flooring with leftover hardwood that i had from my brothers house, redid countertops, and of course a new coat of paint in every room including ceilings.  

This last weekend we had a REALLY bad rainstorm (Seattle) and it leaked in one spot, though I was able to catch it in the attic with a bucket before it damaged the ceiling.

@Jim Adrian it’s a complete guy, sans most of the flooring, because the place has been vacant for 10 years, the plaster ceiling is falling down everywhere, walls need to be reconfigured to make it fit a SFH instead of a Duplex better, Mechanicals all need replacing due to rodent/critter damage, and city code will require electrical service upgrade and new water service, etc… It’ll be a fun project, has good bones, just the soft meaty stuff inside that sucks.

It has high ceilings, a half bath, and maybe 1,200 square feet of usable space. 

@Daniel BanksAs someone well experienced with flipping properties in the area, 70-75% is fine for your numbers.Obviously you want to start at 65% or so (or basically get the property for as cheap as you can) but 75% is probably a safe ceiling for determining your MAO in the Sacramento market.More importantly, if you're new you better be damn sure of your ARV.