However, if your property manager is not adhering to your written agreement then it may be time to part ways.Your tenant is on a month-to-month and they are running a business in a residential home. my recommendation would be to contact the tenant and let them know you will only allow them to continue running the business if they take on ordinary maintenance (e.g. they pay the first $500 on all maintenance issues), provide proof their business is properly licensed and registered with the city, county, or state, and that they have the appropriate liability Insurance in place (at least $1 million) with you named as the additional insured or additional interest.

Want to have my passive income out weight my expenses which is about 20k annually.

But if you need them to stay in escrow to be able to budget properly, then leave them in.

They can make sure your money is properly secured to the property.

You will also want to make sure that the property is zoned properly. 

Contractors are SUPPOSED to know what is required through L&I and they should obtain the proper permits.

As Remington said I would recommend talking to an attorney to get proper advice about this though.  

We like the factors you mention...the sales price range is more affordable than in "SF proper."

And that's not even getting into whether the "pro" would properly diagnose the problem. 

Those that don't work with borrowers that have rentals, may not have the knowledge of how to set the loan up correctly and properly count all income from all rentals.