Ex.  

Agent said there may be a 65% occupancy, but she did say ex-employee was pocketing money.  

Bigger discount rate (60-75% of note principal balance) will apply to notes that are: new note, no payment history, low interest rate under 7-8%, long term (over 15 years), paperwork issues (dod frank compliance for ex.), undesirable markets, long foreclosure states, and few others. 

I am having issues estimating how much to put aside yearly for Vacancies and Cap Ex repairs.

I'd recommend determining your true return on your existing house, including $1,700 rent, less vacancy, management fees (should include whether you self-manage or not), taxes (will increase in SC more than your calculation), insurance as a rental, maintenance and cap ex (often ignored or under-estimated).  

The funny thing is at least half the properties are not "passive" but stress filled with lots of activity (frequent maintenance costs, turnover, vacancy, eviction, cap ex)   Decisions have to be made sometimes with little time or little oversight when doing it so far away.    

After all expenses including mortgage, insurance, water, property management, cap ex, turn over, everything, I'm making $2,000/month which is 15-16% cash on cash return.

If you operate your business professionally and follow all the regulations being taken to court will teach your ex tenant a nasty lesson and cost them money.If you make a mistake and have to pay some money back it is still better than offering money you do not owe out of fear, always make them work for it.

It is possible to over pay on the purchase and yet have a high ROI say... 20% with higher cashflow which would make it underpaid in a sense Ex: Home1 50K BELOW market cashflows $400/mo 12%ROI / Home2 100K OVER market cashflows $1000/mo 19%ROI......... just know that your probably not refinancing anytime soon and that equity is off the table for now. 

Your 35% ROI calculation assumes there are no regular expenses (ex.