Your basis is your purchase price plus purchase costs plus any capital improvements.  

Since that didn't happen it gives you the chance to do a long overdue improvement which should let you sleep better at night.

He has been told to put in as much as $30k for improvements to make the house more marketable.

Here are the details:Single family, Purchase price $25kRehab costs $23kARV $75kEstimated profit for flip is $10k (13.5% of ARV), or monthly rent is $800/monthI would like to make a definitive decision upfront because the improvements/scope of work will vary slightly depending on if this will be a flip or rental. 

I needed to tap into some of the equity created from the appreciation for improvements.  

Do you have cash partner to buy and improve?

Due to the size and zoning, it seems a win/win.The house has lots of issues and is just 1600 square feet, and the potential for income is of course better by improving the site.I'm hoping to tap into knowledge on this site.  

I have learned and improved from every deal i have made.

But it should NOT be commonplace.Look for 2.5-3x rent. no evictions. no felonies. decent history of paying their bills. no owed money to utility companies.If the tenant pool you are getting for your particular rental is not attracting tenants that meet those standards then you need to improve the property or lower the rent, or both.That will open the tenant pool up wider and allow you your "pick of the litter"

To increase your chance for success, approach the occupants sympathetically, tell them you're the new owner (or property manager, if they are hostile) and offer to help with their move out by offering them cash, or pay for a moving truck, or both.