You really want to have your contract approved by an attorney even though California doesn't use attorneys for transactions.

If you are in a high fire zone, the California Fair Plan is likely your best bet.

Has anyone bought an investment property in the California Bay Area recently that could help strategize any ideas on how to move forward?

California is certainly not landlord friendly, as you have already eluded to.

Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes.

@James Mays welcome to investing in California. 

.: I'm curious how CA agents can make a living with laws like AB2992 that state:"If the out-of-pocket costs to pay their agent remain too great and the seller and buyer have not yet reached an agreement on the sales price and/or terms, the buyer may walk away from the subject property provided there is an exit clause, proceed without representation, or approach the seller's agent about possible dual agency representation." 

Our lot size is 7300 sq ft and main house is 1700+ sq ft.Location: San Jose, CA- We were thinking to potentially design the ADU such that we could have a wall (or a door) that allows us to separate the ADU into a 1 bed/1bath for self use (or rental) and another part which could be rented separately on AirBnB as needed.

Highly recommend getting in touch with a good landlord/tenant lawyer that specializes specifically in CA. 

For collections in Southern California, try Sutton Law Center or California Judgment Enforcement.