Yes we are aware that may be an issue.

We've compiled and vetted a list of duplexes (about 75) that meet all our criteria and which we'd consider being occupant-owners of.Planned next step is to send them letters stating who we are, what we're trying to do, and letting them know we'd be interested if they'd like to sell.Any experience or suggestions for how to format (handwrite vs typed, etc) and what points to highlight?

I just want to make sure we are going to a good one! 

Can we just do a move-out agreement that lays out what we are doing differently? 

Part of that rehab is that the units are currently two bedrooms but HUGE so we are turning them into 3 beds AND putting hvac that runs into each unit and sub metering water so that the tenants will pay all utilities. 

we are not closing, and now he is going to sue.  

Currently, I have a good credit and we are working to increase his.

@Dan Heuschele I think we are on the same page that even the rough parts of San Diego are mild compared to some of the larger cities, I just don't want people thinking Logan Heights is anything like some of those areas you mentioned.I feel pretty optimistic about the potential in the area, you should check out the San Diego City revitalization plan for Southeast San Diego if you want to see what might be in store for some of these areas. 

We are in the process of revamping/improving our Inspection process.

We are investors after all!