With the opportunity to raise rents by doing some exterior and interior upgrades should I worry If I can rent these units out for market value rents once we reposition the project? 

Choosing to upgrade/replace at this point is your decision. 

I don't think a typical sink faucet (with an aerator) would flow that fast.The water meter should be spinning like a top at that rate, assuming it's the mechanical type I'm familiar with.If the property is three houses with one meter, I'd say there is likely a broken pipe underground somewhere between them.

It might temper just how upgraded you make the 3 units, but still it should be an improvement that can bring in more money than the existing units.Perhaps keep one as a model unit to show.

I personally only do upgrades if it warrants a higher rent with a pay back on my cost in 2 years or less. 

If its stays rented, if its not broken why fix it? 

Our strategy is to pay cash up front for purchase and any rehab/upgrades and then refinance after a TBD period of seasoning and increasing rental income.  

Just my take.If you had a long term view maybe but it will take some serious cash to upgrade many of these properties.

Upgraded windows are visible from the street and it might generate more interest from potential tenants.

Shortly after that is complete flip sides with the neighbors and raise rent should they agree to a higher rate or get new tenants at a higher rate to reflect the upgrades.