Eventually you would exit (sell) and that would have more equity to make a profit after the cash flow losses or the investment generates positive cash flow in year 2,3,4 etc.

Eventually, I realized that if I kept waiting until tax time to organize my books, I would never escape the stress (and extra CPA fees).

You are afraid of rent control, but if you add an ADU and it is detached, the main house (if built prior to 1978) may eventually become subject to LA Rent Control. 3.

The modest cash flow could be reinvested, eventually allowing me to build a portfolio of income-generating properties.I recognize your point about needing $2.5M–$3M in cash to consistently replace a six-figure income.

The reason I am trying to free up this property is I would like to have an adu built on it eventually.

@Xavier Mc holder yes I did eventually complete that project.  

Rufo, so you are violating the HOA rules so I don't think they would cover anything if it is the fault of your guests.This will eventually catch up with you and could result in some big fines so maybe think of selling this or converting to a LTR instead.

I am not sure what my next move is (stay with the DST and lose $ or move to the REIT and eventually have to pay cap gains tax if performance isn't good). 

That clause avoided a lot of headaches when the seller eventually exercised their option.Seattle permitting can really be a curveball.

Could you share a bit about how you identified the builder you eventually decided to work with?