You can get some insurance on unpermitted units, a lower coverage amount than for a permitted unit and will have difficulty rebuilding it as a permitted unit at the covered amount (which makes sense because its value is less than a permitted unit).  

I know that my COC my be lower, etc but my main concern since its my first property is being cash flow positive.  

It's successful in high-cost markets like Southern California but faces challenges like high entry costs and local regulations.

But I do appreciate r this sentiment as it does lower competition in the area :). 

You’re able to learn the basics of a real estate investment with lower risk and build equity at the same time.

If rates drop in the future, refinancing again could lower your payment, but it’s good to make sure the numbers work now just in case.

I've been watching Chad Carson's videos and his approach of accumulating more properties than you need, then start using that income to pay off mortgages and cull the lower performing properties makes sense to me. 

In terms of the second scenario, the upside I see is the option to get a different kind of loan (say, FHA with a lower down payment and other assistance programs for K-12 educators like me) since I'd be getting a new primary residence instead of a second home.

.= Points Of Significant Liability Exposure =- Prospects performing unsupervised showings/entry of properties.- unlicensed persons providing services.

Do you buy homes that do not satisfy this rule, or do you just make lower offers so that you adhere to that rule?