@Brie Schmidt Thanks for the shout!
@David L. recommended (when smart people like her make recommendations, I always listen!). Be cautious on the expenses though -- very unlikely you will ever approach a 50% expense ratio in Hawaii since there are no heaters, air conditioners, and vacancy is non-existent.
I invited a friend to help build it with me, and you can read more in a series of blog posts here. I would recommend a couple things:
1. if you are on a tight timeline, hire an expediter to pull permits. It was the best $1200 I spent on the project.
2. Size matters - you'll get the most bang for your buck if you build a smaller ADU (like 300-350sf). I analyzed several size scenarios, and the smallest one had the highest ROI.
3. Don't skimp on electrical or plumbing since those are required to be done by a licensed person, but all the other stuff you can do on your own if you are so inclined. Also, you should be able to find some great materials on CL for cheap. There's some suggestions for saving money in the link to the blog above.
Is 7% a good return? That's a different answer for every investor. When you are projecting returns, you should have a benchmark to compare against. It would not be a good return for me, because of the credit and liquidity risks of real estate. I think (long term) the stock market (VTSAX) will do 7% with much better liquidity, no work, and no credit risk ... so I would not do a deal if it was only 7% return. If it was a negative return, I would definitely not do it ... unless it was more of a flip and you were expecting a quick sale after you pick up the value boost from an addition.
Best of luck!