Add the finance issues, level or effort it requires, loss of something from primary unit (even if it is just yard), and the amount of time between first capital outlay and initial income.In general, adding a ground up ADU in SF zoned area is a poor investment.  

If developers aren’t building because it cost too much due to inflation, and why would developers spend all this money to build and then take a loss on the sale?

The addendum is unnecessary because as a couple they are both responsible for paying the full rent.

Sorry to hear this.I would always say that "There is nothing wrong with any property as long as the price is right".Granted, some are not salvageable and the deal doesn't make sense even if the seller paid to me to take it lolOver the past 10 years I have witnessed many investors trying to do the same thing as you.Purchase from afar without buying turnkey and trying to do it themselves.This has been popular especially the last few years.Not many succeed unfortunately or they don't succeed in my eyes as they are into deals for much more than what they should be.There is a big trend going on where folks are made to "feel involved" with the purchase, rehab and property management process.The properties look great and off-course they do as rehabs cost $40,000 - $50,000.It doesn't sound like a lot of money for folks from CA and NY but for our local standards it is and IMO kills the cashflow and is unnecessary overcapitalization.Each to their own I guess.Just had a call the other week with a fellow from CA that bought a few turd properties from a local scam artist and is flying to town to try and rehab them himself.Another fella I managed to save even tho he lost his deposit of $1,000 as the seller (Another known scam artist) made him commit to the deal without allowing an inspection or even a walkthrough...If that isn't a red flag then I don't know what is 🤷‍♂️Hat's off to you for flying into to town to see the property for yourself.Wishing you much success

But how much damage will be done by hoping for the unknown and operating at a loss?

Often times the individual has long since recovered from what caused the derogatory in the first place--i.e. job loss, divorce etc.

They were reducing the premium slightly for this loss of coverage. 

Moving forward, save religiously, build your credit, and limit unnecessary debt.

Saves you from the fees and unnecessary churn. 

She can always cash out within 3 years of placing her primary as a rental and not have much opportunity cost loss.