In these neighborhoods no more than two unrelated persons may live in a dwelling.

For me personally I have landlord insurance policies for my dwelling in place and the rentals under my name.

Most cashout- ReFi options I've looked into will give 70% Loan to Value on a multifamily dwelling so that $25-28K range sounds about right.If that new loan still cashflows and the $28K gets you into a new deal to start the BRRRR snowball, it's probably worth it.

As a personal aside, i installed a 5-foot by 9-foot quartz countertop in my own personal dwelling to facilitate lunches with my wife and 4 kids, and it's too big. 

There are a lots of 2-4 unit properties that are for sale in my area that are not zoned as multi-unit dwellings.

Also, the second unit is considered an Accessory Dwelling Unit or ADU and I cannot re-zone this property or have the basement as a 3rd unit.

.)— If "yes": Are you renting the entire dwelling unit?

Who would be enforcing the dwelling use (zoning, codes, ect)? 

There are certain breeds that make it very difficult to get Homeowners or Dwelling/Fire policies.  

(Effective September 30, 2018.)(1) A landlord may not, based on the source of income of an otherwise eligible prospective tenant or current tenant:(a) Refuse to lease or rent any real property to a prospective tenant or current tenant, unless the: (i) Prospective tenant's or current tenant's source of income is conditioned on the real property passing inspection; (ii) written estimate of the cost of improvements necessary to pass inspection is more than one thousand five hundred dollars; and (iii) landlord has not received moneys from the landlord mitigation program account to make the improvements;(b) Expel a prospective tenant or current tenant from any real property;(c) Make any distinction, discrimination, or restriction against a prospective tenant or current tenant in the price, terms, conditions, fees, or privileges relating to the rental, lease, or occupancy of real property or in the furnishing of any facilities or services in connection with the rental, lease, or occupancy of real property;(d) Attempt to discourage the rental or lease of any real property to a prospective tenant or current tenant;(e) Assist, induce, incite, or coerce another person to commit an act or engage in a practice that violates this section;(f) Coerce, intimidate, threaten, or interfere with any person in the exercise or enjoyment of, or on account of the person having exercised or enjoyed or having aided or encouraged any other person in the exercise or enjoyment of, any right granted or protected under this section;(g) Represent to a person that a dwelling unit is not available for inspection or rental when the dwelling unit in fact is available for inspection or rental; or(h) Otherwise make unavailable or deny a dwelling unit to a prospective tenant or current tenant that, but for his or her source of income, would be eligible to rent real property.(2) A landlord may not publish, circulate, issue, or display, or cause to be published, circulated, issued, or displayed, any communication, notice, advertisement, or sign of any kind relating to the rental or lease of real property that indicates a preference, limitation, or requirement based on any source of income.(3) If a landlord requires that a prospective tenant or current tenant have a certain threshold level of income, any source of income in the form of a rent voucher or subsidy must be subtracted from the total of the monthly rent prior to calculating if the income criteria have been met.(4) A person in violation of this section shall be held liable in a civil action up to four and one-half times the monthly rent of the real property at issue, as well as court costs and reasonable attorneys' fees.(5) As used in this section, "source of income" includes benefits or subsidy programs including housing assistance, public assistance, emergency rental assistance, veterans benefits, social security, supplemental security income or other retirement programs, and other programs administered by any federal, state, local, or nonprofit entity.