I would restate that the lease will remain in place until such time that a new tenant is selected and moves into the property.This approach will ensure your cash flow while acknowledging that 'stuff happens.' 

Being 3 units, the valuation will come from comps not from cap rate/ income based approach.

Does this approach seem reasonable, or am I undervaluing the property?

If so, how did you approach it initially?

Focusing on smaller multifamily properties needing light rehab is a smart approach for learning the ropes.

This approach could keep things straightforward while accommodating their need for housing.

A business partner approached me about it, and I negotiated the deal based on CAP rate.

Let me know if you need help refining your approach!

Both approaches have merit.

Can try to reposition to Class B, but neighborhood may impede these efforts.Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years.