It sounds like normal wear and tear to me.

Like i can't buy a 3/2 on a conventional loan and then start tearing it down. 

Depending on the code officials, if you close on the deal they can come back and make you tear out all the work he did with out the permit.

They are also subjected to the wear and tear of things like carpets, flooring, and the king of them all TOILETS AND GARBAGE DISPOSALS.2.

I think the market will allow it for a bit lower rent, but I wouldn't tear out the central heating system until I know the heat pumps work well enough.  

We had to tear down and rebuild the garage.. that was a year long process! 

I want to explore the options of building townhomes on the lot and get a bigger return.Right now I can think of two plans: 1. tear down the house and build 4 townhomes on it.2. keep the old house, divide the lot up and build 2 townhomes on the extra lot. 

Like the previous person said, a new adu law just passed where it suppose to be easier to get an unpermmitted ADU permitted without necessarily making you tear down the old one.

Also 95% of the properties we help our investors manage, the hoa will include everything so there wouldn't be anything additional besides normal wear and tear.

Anyone can say "let's tear down this wall and add a wall here to create a new bedroom", but it takes real experience to understand issues like whether it would be permitted, which walls are load-bearing, what HVAC / electric / plumbing would need to be re-routed (and the feasibility of that), and all the other issues that come up when modifying a property (HGTV tends to make it look a lot easier than it actually is!).