There is a reason I don’t invest in CA at all…Regarding AB 968, as you implied with the beginning of your comment, this should provide protection to end buyers, or at least provide them easy resources and contacts to reduce potential ownership headaches (example: “hey I accidentally broke a bathroom tile, can you just tell me where it was ordered from so I can go get another one?”).

Ie a property with 0 repairs required, then a house with small repairs, then a full remodel flip  that included adding and permitting new bathrooms, removal of walls, doors, windows etc etc. 

Is it worth to add bedrooms and bathrooms to my home?

About the basement: It's partially finished (drywalls and ceiling only) with no bathroom or kitchen.Since it's a considerably smaller house, I am not sure if this would add significant value to the house if we sell it say 5 years down the line.

The bathroom, measuring 75 sqft, is now being considered for renovation.

Replaced floors, scraped popcorn ceilings, repainted inside and out, remodeled bathrooms, updated fixtures.

The scope of repairs include: complete renovation of master bathroom, kitchen, and guest bathroom.I spent about $1,700 on materials for the master bathroom (vanity, lighting, tile, grout, 2 medicine cabinets, cement, drywall, etc.).

The most successful D class or 100% section 8 project I ever ran into was in Hattisburg MS. the original owner built about 20 little stand alone units  on the property and each was built with cinder block so very minimal sheetrock inside.. concrete floors throughout with drains in the middle ( kind of like you see bathrooms in Asia and other parts of the world . 

Is there a bathroom down there now?

Build a legal rental unit with kitchen, bathroom, new windows and others, according to the design from Sokol Design-Build GroupDig out the basement and install a new concrete slab, it's a separate addition job and will cost $ 15K - $ 20K.much better than the first one (and yes both are insured and are experts in the field) I may have to GC this project myself to save some money.