On Thursday he verifies the unit is in fact broken and is not repairable and will need to be replaced. 

Capital improvements include expenses for improvement to the property, such as a new roof, new siding or major renovations.Capital improvements for residential property are deductible over a 27.5-year period; Ordinary repairs required to maintain the property in good condition, such as painting, fixing leaks and replacing broken windows, are deductible in the year they are paid. 

Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly.

And finally, when they did, the repairman told the owner "this will cost more money to repair than to replace."  

Replace with PVC, but By "good way" I presume you mean good and cheaper than that.

We plan to have all of the windows replaced, have made upgrades throughout the home, and eventually add 1-2 more rooms in the partially finished basement.

Long-term goal: Appreciation is nice, but my goal is to generate cash flow that can eventually replace my salary. 

Most areas that are non conforming allow continued use or replacement use as long as property is not vacant more than 1 year.

This might be a stupid question... but did you replace the toilet? 

The roof was replaced completely in Nov 2020.