But the company said they would cover only for plumbing leak but not the water heater failure.

That plumbing bill or new appliance will generally cost the same, so higher R&M reserves, as a percentage of rent, are needed in lower quality/lower rent assets, too.

The right tenant will build out the space with AC and plumbing.

The minimum $33,500 is to complete the minimum rehab, updating electric, plumbing, kitchen cabinets, doors, trim, paint, appliances, curb appeal, etc.

What condition is the roof, hvac, plumbing and electrical in?

In general, the order should look something like this:  excavation, inspection, footers, inspection, foundation walls, damp proofing, drain tile/sump pump, inspection, backfill, plumbing (if you are putting anything in the floor of the basement like a stub for bathroom, drain, etc.)

This includes examining the structural integrity, plumbing, electrical systems, roof condition, HVAC systems, and any other significant features.Title Search: Hire a title company or attorney to perform a title search on the property.

As a renter, he won't understand the HVAC, plumbing and electrical stuff.

Can they reroute the plumbing around the exterior and abandon the existing system or do they have to replace it?

That usually means the units were renovated, but what about structural, mechanical, electrical, plumbing?