We asked the seller to make repairs we did not want to make ourselves, as well as asked for a few thousand to repair the roof, get electrical work done, and replace some appliances.

The newly renovated rental condos I bought had a landmarked roof requiring a million dollars to replace and each owner is assessed $10,000. 

A roof 10 years old has a higher capex number vs a brand new roof. 

REI's key aspect is "investing" where you are taking your existing capital/credit and 'investing' it to make more money. 

When you say complete demolition do you mean all the walls and roof down to leaving the foundation or new foundation also?

The affordability index is going down compared to previous years, but the opportunities are still there for OOS investors as rents are going up and appreciation has been through the roof!

- How do I get comfortable with unforeseen risks (sewer problems, unknown foundation issue, roof etc) that ay come up once I crack into the walls?

In the Operating Agreement, all the income/loss aspects can be spelled out. 

Sometimes with real estate investing you have multiple approaches and its really just up to your intent/strategy and risk tolerance as to decide what to do next.You probably should find yourself a good lender that will work out these aspects for you, i.e. your financing/loan options. 

Everything in the home is fully upgraded with the past 4 years (plumbing, electrical, roof, foundation waterproofing/draining, new municipal sewer and water connection, etc.)We could expect about $5,000 yearly residual initially until paid off and then we could expect rent of around $825 and rising from that point forward.