Is it worth it to go through the proper process with the city and run the risk of a huge expense to make this a 3rd unit? 

My advice would be to underwrite as many house hack opportunities as possible and assume 100% vacancy + a large capex item so you stress test your worst possible scenario and can you get through this.

Please let me know if you are interested, I will walk you through our data and call transcripts so you can see some real world data in the Hawaii, SoCal, Washington and Tampa markets.   

The only two ways to rectify this are (1) purchase the property far below market price or (2) significantly increase the property net income usually through some method of “repositioning”. 

A prudent investor doesn't seek quick riches through shortcuts.

Happy to chat through some options.

Check out the different Forum Categories here as they can answer a lot of questions you have just reading through.

A prudent investor doesn't seek quick riches through shortcuts.

Deep knowledge of tenant segments and their behaviors is essential, and this expertise comes only through a good property manager.

Focus on key areas first (like floors, walls, kitchen, or bathroom), which may help you handle the costs more gradually, even if it means moving in furniture or updating fixtures down the line.Also, since the tenant left it in rough shape, be sure to document all the damage (photos, receipts) in case you decide to pursue reimbursement through their security deposit or in court.