I have always avoided properties with pools, creeks, or any form of water due to liability and maintenance issues.

He initiated the tide water initiative and asked me for my comps which I happily gave him.

This lot includes a foundation stubbed for electrical (underground)/plumbing/sewer/water etc. the former property was deemed a total loss in a house fire and the prior home owner cleared and stubbed the foundation (slab on grade).

My capex budget includes but is not limited to: roof 25 year life span, floors 10 year life span, appliances and hot water heater 12 year life span, hvac 20 year life span, kitchen and bath remodel 20 year life span etc.

Fix the source of the water issue and then get some bleach/water mixture and spray all the mold and mildew down to kill it off. 

That's actually a great opportunity to add an air/water/vapor control layer, too.One option for the heating would be to add mini-splits to each apartment.

Would you spend the money on tankless boiler/water heaters?

Since you’re so far over I’d leave it alone barring any water stains. 

The rehab budget got blown completely out of the water by "surprises" but that's half of the fun of any good learning experience, isn't it?

The red stain is probably iron from the water.