He's almost finished gutting it and is planning on porting in the insulation, new water heaters and rewiring the electric and putting in new plumbing.

Does plumbing and electric need to be brought up to code?  

This is why the 1031 has a place in the right transitional plan.I like your foresight and thinking now about how to strategically place your assets so they can provide the benefits listed above while not sapping your energy in retirement is key. 

Tenants pay heat and electric.

Install drywall, flooring, tile, HVAC system, R&R windows, R&R entry door, new bathroom, new kitchen, run electrical, insulate, paint, finish work.  

Should I still be budgeting for CapEx, as the warranty will cover repairs (covers HVAC, plumbing, electrical, appliances, etc)?

Russell Brazil I'm new here with two maybe three posts, but I can assure you I'm no stranger to these forums or my personal favorite the weekly podcast.I have to say I really appreciate the time, energy and effort you and the other members like yourself commit to answering people's questions and provide them with feedback on various topics surrounding REIIf I had to look back over the last 4 months I have seen a post or a reply from you almost every time I have opened the app.

Might want to double check that the electric is sub metered.

The City just adopted the 2015 code which has all kinds of energy efficiency requirements.

For example, Shell has announced they are moving their corporate headquarters from Downtown to the Energy Corridor.