Best to prepare before doing so, so that you can meet with (or terminate) your existing PM, view your rehab, and meet with the new PM(s) and contractor(s) before finalizing things and heading back out. 

I always thought it should have been outlawed and have no idea if it still exists in consumer loans.

Does anyone know of a financing option for somebody that wants to build an ADU on an existing property?

It's purpose is to simply make a contact aware that you exist.

That is why you tend to see builders offering such a big "Builders Credit" it’s because it's "Ghost Money" it really doesn’t matter or exist to an extent.A builder can go into an area build 20-30 homes for example, buy the first 2-3 homes paying top dollar so they can set the market sales.

I want to add onto the existing house and create an apartment as part of the extension.

@Jonathan Klemm thanks for the mention@Ali Farhat Jonathan is correct that you may still have some opportunity depending on the Zoning designation for the lot, and how many existing units are Legally Recognized by the City.You can Check the Zoning Designation here on the Chicago Zoning MapFrom there, you need to check the requirements for your lot based on the Chicago Zoning Ordinance (Note: RS-3 does not mean 3 Units.

If Planning does determine the existence of your ground floor unit, it will require you to legalize the unit through the existing Planning code process assuming zoning supports the third unit OR using the new ADU program making your fast track condo conversion a passing dream.With regards, to some of your latter comments and questions:1) Any un-permitted work (including corrections) is not a good idea as a quick compliant from a neighbor can bring an inspector knocking on your door with a NOV especially in the current environment where everyone is SIP.2) Legalizing existing constructed spaces can be hit and miss based on the inspector you get.

Start-up costs are also deductible but are amortized over 15 years with a limit of 5k.Start-up costs have strict rules and your case might not be the same as this one.Case Summary:Timeline line of eventsStarted investigating property: FebPut first contract (canceled): MayBought first property: December 30thWhether a taxpayer is engaged in a trade or business is determined using a facts and circumstances test under which courts have focused on the following three factors that indicate the existence of a trade or business:Whether the taxpayer undertook the activity intending to earn a profit;Whether the taxpayer is regularly and actively involved in the activity; andWhether the taxpayer's activity has actually commenced.On the basis investor testimony, we may assume that he undertook this activity to make a profit and that he regularly and actively engaged in it.

If you hold it as a rental for 3+ years, you have created a tax liability that did not exist before.