For example, I would walk away if you don't:Have a clear understanding of what the total repair would cost.Have the tolerance for risk or ambiguity.Have the cash to do the repairs while maintaining general cash reserves.If these are true, walking away may be a better option than getting a $15K reduction on a $10K repair.

Here are just a few examples: --------------------------------------------- CALIFORNIA LAW (my state): TENANT'S AGREEMENTS TO MAKE REPAIRS: The landlord and the tenant may agree in the rental agreement or lease that the tenant will perform all repairs and maintenance in exchange for lower rent.154 Such an agreement must be made in good faith: there must be a real reduction in the rent, and the tenant must intend and be able to make all the necessary repairs.

Well your math is wrong.In year five your capital basis would have also been reduced by principal payments.Apply the principal reduction to the amount invested and see where you end up in return.

Why did you agree to a rent reduction ?

I generally won't use a licensed plumber to replace a water heater, and as such, won't pull permits.As a counter-example though...yesterday we were replacing a water heater and a pressure reduction valve for a buyer after their inspection, and knew that the buyer/agent would be interested in seeing receipts/invoices.

As it turns out they've gotten a rent reduction every month since we started the system.  

If I get a strong candidate, and they ask for a reduction, I may go down $25 or so; $50 if it's a harder area to find good tenants.The PITA factor can't be ignored.

As your property increases in equity, the REO will tend to decrease (unless your net income keeps pace with the appreciation of your property and the principle reduction of any loans). 

However, one potential problem is if they they don't all agree, say one tenant wants to keep things the way it is now and two tenants don't mind signing a new lease with a rent reduction to allow for their own cable/internet, I don't want to end up doing both.Thoughts?

3.Reduce the purchase price by this amount.4.For the sake of assessing the deal only, count this price reduction as additional income that makes the COC and total ROI attractive.