She has been trying to BORROW the funds she needs $550K to pay off the Husband and another $300K of additional funds (Totaling $850K) so that she has the EXTRA borrowed funds to be able to make 2-3 years of payments on the financing (versus raiding her retirement account).

You would want to avoid a DSCR refinance right now for cash-out as those loan programs will carry prepayment penalties - refinancing post-rehab to get your equity back out of the property (based on improved value) would leave you paying an extra prepay penalty. 

So I don't know if it makes much sense to buy a rental property for about 200k-250k, just to make a few extra thousand a year (based on a 5% return).

I understand they have other clients and cant just drop everything to do what I'm asking but right now it feels like things are taking extra time by having a middle man. 

However, this might expose your operational LLC to risks associated with your rental properties, which could be mitigated by keeping them separate.Cons: Separating Y from X could provide an extra layer of protection.

Demoed the whole house except one wall added 3 extra bedrooms 2 bathrooms customer fixers raised ceilings a pool and many more details.

My mortgage would go up $781 for the next 30years,  the ADU income would more than cover & I hope to pay extra principal to cut my loan time -it's just I was hoping to pay off ADU within 5.5yrs- so that I can collect 'all' ADU income at that point <I'm fixed income & I lose 'some' personal income in 5yrs so trying to plan ahead on how to recoup that>.

My W2 is affording me some extra time and I want to spend that time building my REI experience.I am a commercial lighting and interior designer and lighting controls expert. 

I know it's a pain to pay the extra couple hundred dollars for re-inspection, but it's always worth it to double check and confirm on your end.

If its done right from the beginning yes it adds a great layer of protection, but again - most do not do it the right way so its not providing any benefit.