You would have to improve the property (dramatically) at great expense to actual meet that definition and use it as a townhomes.

That's a low-return improvement, compared to say new bathrooms/kitchens.IMHO, if you expect to increase your net through rental and market appreciation, consider the length of time it will take to realize that goal—many years. 

Cash Payment: Paying cash for improvements is often the most economical way.

Unless you live in area that has many ADUs already built that have been sold with the home or as individual parcels.

It doesn't make sense for an individual investor to buy  single large box tenant for a really high price.

With all these people jumping in, the problem gets larger by unscrupulous individuals who start selling, and up-selling, so called "Real Estate Training Courses." 

Those people overlooking what it means to “materially participate”Here’s the Material Participation Criteria:Spend more than 500 hours on the short-term rental businessDo substantially everything for the STR businessSpend more than 100 hours on the activity and no one other individual spends more time than you doSignificant participation activity for more than 100 hours, and your combined activity in all significant participation activities exceeds 500 hoursParticipating in the business for five of the 10 previous taxable yearsPersonal service activity (non income-producing) for three of the previous taxable yearsRegular, continuous, provable participation in the business for more than 100 hoursA Cautionary Tale: The Story of JacksonLet's take a moment to learn from the mistakes of others.

You'll be fine, especially if you're using additional equity contribution to improve the property before your refinance.

It was left up.This particular individual would have really went off and done personal attacks if anyone would have been bold enough to challenge what he was doing openly.

@Jordyn Gegg - I have a PM company that oversees all of my individual LLCs.