By optimize I mean fix it up/finish off the rest of the sq ft in the basement to meet your needs, while also increasing the rental revenue potential. 

This price increase is largely attributed to the limited supply, which is not meeting the high demand.

As someone else pointed out, the goal of a refinance after renovating a property is to get out your down payment as well as some extra due to the increase in assessed value.

Simple solution.....application denied.

We just last week sent out leases and rent increases with a schedule to get them all up to FMV by next year, which is more than double for most of the properties.

In California you also have to worry about rent control and not violating the rent-increase caps for your jurisdiction through new utility billings on a preexisting tenancy where utilities were previously included.The cost for third party billers is minimal and they'll help you get your arms around all this if it sounds too complex.

If you want to keep it simple, go with Stessa or a simple spreadsheet as a P & L.

My understanding just from my own research is that if it's a direct threat to health and safety of others or causes landlord an undue financial burden, like your insurance won't cover the breed and you can't find insurance coverage without substantial cost increase, then you may be able to deny it, but your property management likely knows all this and they apparently said it's legit. 

I would certainly ask about what your future LTV would be on a cash out loan to determine how much cash you would potentially be able to get...your property would need to increase in value considerably if you only put 3.5% down when you purchased it.

A $1million home will have $276,000 in value increase after 5 years (using that same 5% appreciation per year).