ADU vs. multifamily purchase

[Dawn Holley]

I'm in Santa Cruz, CA and live with my partner, who owns the home. So this is a big factor, I do not own the home. I have an active interest in REI, my partner is a professor and perfectly content with his income and retirement plan.

I have $100k to invest, which ins't enough to purchase REI in the area, which is why I have a duplex in Oregon instead. I can start the process of locating a new out-of-state rental, however, the county where I live supports ADU's and rents are quite high.

I could invest in converting the garage into an ADU and renting for around $2k/month. I could potentially become partial owner to capture future appreciation, my partner could do a refinance and pay me back, there are likely numerous ways to make this a fair investment.

There is plenty of value in the home for a HELOC for my partner to do this himself, however due to an interesting loan arrangement, current (fantastic) financing disqualifies this option. The home would need to be refinanced at a higher interest rate in order to pull cash out.

Or, I can keep everything separate and continue purchasing small multifamily buy and hold out of state. 

COC on an ADU in the area is quite high, but I'm not sure how to legally protect myself seeing as it isn't my personal property.

Also worth mentioning, my main goal is passive income. 

Can anyone speak to this situation or provide knowledge and advice? 

Thanks!