It is the gross income minus major capital expenditures. i.e.

Your mechanicals and capital expenditures are a lot more important and more expensive to fix than a pretty kitchen. its better to live in outdated kitchen and have a well kept home with updated mechanicals/roof/hvac than one that looks pretty but will start to crumble5.

Request a detailed list of documents and information from the seller, including financials, leases, contracts, capital expenditures, surveys, environmental reports, open permits, and the Certificate of Operations.2.Physical Property Due Diligence.

Further, it's always a good idea to do due diligence into the association itself to make sure it has adequate reserves in case of any large future expenditures.

I would say you definitely need to add a vacancy cost I would also look more seriously at repairs/ capital expenditures for starters.

I can tell you that no matter the price, this is not a deal for you if you have never owned or upgraded a home or multifamily before.If you have full occupancy and "the windows, roof, electricals, plumbing systems, and gas lines all need major upgrade to bring the property up to date" that means you have bargain rent and enormous capital expenditures.

Purchase price + capital expenditures - land value = depreciable basis  

The one question I have is do you deduct anything for capital expenditures in this model or does that fall under the 10% maintenance?

I'm working on various projects to get it ready to rent and reduce the immediate capex expenditures once a tenant is in there. 

I am concerned that he/she is either filing bogus small expenditures OR performing services himself/herself and making profit.