In your case, changing the property from a rental to your primary residence constitutes a change in use.The depreciation recapture will be calculated based on the fair market value of the building at the time of conversion, not including the land value.Since you're tearing down the existing structure, the entire amount of depreciation taken over the past two years will likely be recaptured, as the building's value at conversion will effectively be zero.The recaptured amount will be taxed as ordinary income, up to a maximum rate of 25% for residential rental property (Section 1250 property).

Building an ADU is not like building a structure on a vacant lot.

There are Different ways of structuring lease options.

Are there many REITs that currently regularly engage in this type of feeder based structuring for a investors?

Entity structuring, basis calculation (i.e. breakout between building and land), deductible expenses, etc.

If you’re interested in exchanging further insights on best practices or have specific questions about structuring a VA program, feel free to send me a private message.Good luck with ramping up your direct-to-seller leads!

Tax-Exempt Bonds: Tribes can issue tax-exempt bonds for certain types of developments, reducing financing costs.Challenges: Projects often need to be structured as joint ventures or leases with the tribe, and compliance with tribal laws and federal rules is critical.

The biggest cost variables are structural surprises, electrical/plumbing overhauls, and environmental hazards (asbestos, lead, etc.).

(i.e. initial decorating and painting, bookings, rate structures, marketing, bookkeeping housekeeping, etc)? 

Meaning you can add another unit to your existing structure and 2 more units on the new subdivided lot.