Not sure about the second rule you mentioned.1%, and 35% operational cost are the two rules you are using. 

However, it may be a better strategy to base your decision on cash flow rather than speculative gains.Purchase Price: $480KAnnual Rent: $2,400 * 12 = $28,800Expenses (@30%): $8,640Net Operating Income (NOI): $20,160Cap Rate: 4.2%Another point to consider: if you're already facing negative cash flow, how will your returns be impacted when it comes time to turn the property or if a costly repair is needed?

I also own a small renovation company that has operated in my are for nearly a decade. so my rehab cost on a property would be much more cost effective than hiring outside contractors.

It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC.

I have had turns where things are recommended to repair based on the field operator and my property managers notes, and I would expect the professionals with eyes on the property to have the best opinion on when the inevitable concern arises. 

Quote from @David Butler: I wouldn't endorse such a view, but some people see nothing wrong with it as long as they operate within the boundaries of what is legal.

If the property has historically operated as a 2-family and the rental license has not lapsed for more than 3 consecutive years L&I will continue to honor the 2-family use.

If you are primarily a lender you can't really contract your way into another position and avoid that lending position.Other issues come up when a lender takes a management role in the operations of any borrower.

We operate across the Southeast with homes in Memphis, OKC, & the DFW Metroplex.

All local laws apply but i would think you are illegally operating a multifamily home that has not been permitted.