First question does it make sense to spend all that money into a room that is not a bedroom  within the city limits of Birmingham?  

I am going to end up spending 3-4k to get it into good shape for next winter.

Your bank is going to want to make sure that you don't spend your down payment for them before you close.Owner financing means that you and your coworker can negotiate everything, the length of the loan, the rate, how much down, etc. 

With more units, bigger budgets, making it easier for the HOA to absorb (not always tho)2) having someone on the inside is key, they can share with you information as to the true health of the HOA and politics. 3) FINANCIALS - Need to see balance sheet and P&L.

If that is based on comps, then you probably already have a lot of that equity with doing zero work, the work would only add marginally more equity, so in theory you could see what type of HELOC you could get now instead of spending $30k on rehab and then seeing.

. - Ongoing Repairs - These can be highly variable, but in my portfolio, long term, I was spending $150-200 per unit per month.With about 2 hours of work you can be sure the numbers are spot on. 

Second question, Should I go toward the top of my budget (qualified at $260,000 and currently looking at properties near that amount) at the start, or should I scale back and do a smaller property a little further away to test the waters and gain some experience with finding and managing tenants, but will allow me to easily afford the mortgage in the event of vacancy.Any advice, or criticism, would be greatly appreciated.

If you're only safe for a $22k HELOC, didn't you also say that you needed to spend money on your own home too?]

So, my main question is whether or not we are overshooting or undershooting with our 15% budget or should we allocate more since it was build in the 1950s. 

The main reason I care is I don't want to have to spend $1000 or more every year on the tax prep when all I probably need to do is file on the Schedule E (especially with just one or two properties).