Ok to summarize it seems that there is Zero way to dodge CA annual fee.

This is the breakdown:2 tenants on month to month leases ~$250-$350 less than market1 long term tenant (15yrs) is now on month to month lease and is paying $1500 less than marketAfter consulting with a couple of people and doing some research, it sounds like anything over a I should apply banking rent raise and submit a 60 day notice (all of these units fall into that category).

This is what I would be doing and disclosing to the people looking to sue. 

Do you understand how to fix the issue?

This is an example of someone violating law to make more money, and it could eventually come back to bite them.

As of this morning, WSJ Prime is 7.75%, so I would expect the rate to be over 8% at the very least.

I'd be happy to.

You are playing with fire with this strategy to start, but then when you count in an inexperienced rehab to rent a year later, I would earmark this for disaster.

Are there any particular things to check when evaluating such a deal?

You just won’t have rent during the rehab period, you don’t need to deduct it from anything - just don’t plan on getting any.