This is an exercise in sales because you have to sell this to your investors up front.

In the event that Landlord exercises its right to repair such uninhabitable portion, therental shall abate in the proportion that the injured parts bears to the whole Premises, and suchpart so injured shall be restored by Landlord as speedily as practicable, after which the full rentshall recommence and the California Lease Agreement continue according to its terms.21.

. - if nothing else is done, then yes - when the option is exercised the depreciation has to be recaptured.

If we found a buyer before we actually purchased it who would pay us what we wanted we were going to sell it wholesale.Once the purchase went through we advertised it as a rehabber flip and started the demo.During different stages we added our desired profit and advertised it as a fixer upper.During that time we found a buyer through FB who wanted to purchase it once we completed it.We contracted it to them on a Lease option Purchase which means at some future date they can exercise there option to purchase but until then they are strictly renting it.So all that being said, we bought it at $10,000 put in about $20 in rehab (personal loans for some of this) and sold/optioned it at $67,500.  

@Leah Gober and anyone else: I was thinking a "tabletop" exercise would be interesting.

If you remove the borrower from title, yes the bank can exercise the due on sale if they choose to.

I have found that if you do a good job up front ,  the seller is more likely to finance your purchase when you exercise your opinion . 

Now run the same exercise for the principal paydown and factor in some cash flow / tax benefits on the side.You cannot get returns anywhere near this in the stock market or any other alternative with such certainty and low volatility.

Undoubtedly "But my market is too expensive" .Having been a boat captain for 10 years (exercising hierarchy)  operating a 10% down 120% ROI rental (Crestline CA) and having a best friend with 40 units in Long Beach CA, you cannot be someones friend (ie "cool landlords" and be cash neutral.

I went through the exercise of figuring out the rehab costs, paint, drywall, appliances etc.