REO's were hitting the market that were essentially great houses in near perfect condition and selling for 100k .  

Some people just love the idea of jumping in and completely transforming the house into something that's essentially brand-new.

A very simplistic answer is its a 2000 furnace Payment$1950 is principle on the furnace$50 is InterestDate                      Account Title                      Debit            Credit12/2/2014             Cash                                                       $ 200012/2/2014            Liability Furnace Loan         $195012/2/2014            Expense- Interest                 $  50                                                                                              $2000           $2000Also the Furnace expenditure should increase the cost basis of the property for valuations and cost accounting and profit/loss metrics

Essentially I base it off the fact that I'll need to replace 2 hot water heaters, 1 furnace and 1 roof every 20 years.  

Jon,You are getting a loan essentially with the buyer's money.

Essentially you need to understand the ROI associated with real estate (and Ideally investing in general) and how cap rates, equity, appreciation, and liquidity all play different roles.   ..and when you advertise your properties be sure to quote the most accurate numbers you can.  

We have been following the Dave Ramsey money principles and we have a fully funded emergency fund of 6 months living expenses and we are investing 15% of our income in Roth’s for my wife and I and 529s for the kids.

That's a real thing, and it's essential in order to be successful, locally or at a distance.

Essentially, I went without rent for 6 months, on top of a $2.3K rehab/repair bill.

It seems like he usually just says: "I'll give you your principle + 25% when I finally sell the unit."