Hopefully, you can find data to show it won't all be drug users, crazy parties and sex workers.

The reason I would wait until the non renewal is to reduce friction.

In addition to the high cost of building, the low appraisal reflects there are many more owner occupied purchasers than investor purchasers so adding the ADU likely reduces the buyer pool. 

But considering the way he does it sounds like a great way to reduce risk.

However, by doing so, I'll be paying $1000 extra each year towards my mortgage, reducing my cashflow to $4000/year.

Someone said it before but definitely drop price when starting and even say in your listing your new and reduced price so people will try it!

When you do a cash out refinance its cash in hand (liquid reserve) so it can be used as an asset or for PITI reserves on the next purchase.The other downfall is if your credit score should drop for any reason which can happen even my accident or mistake the lender will close or reduce the Heloc credit limit.

So, we obtaina full credit report and review collections, chargeoffs, age of credit accounts, active accounts, etc.to build an overall credit evaluation.FICO ScorePct of PopulationDefault Probability800 or more13.00%1.00%750-79927.00%1.00%700-74918.00%4.40%650-69915.00%8.90%600-64912.00%15.80%550-5998.00%22.50%500-5495.00%28.40%Less than 4992.00%41.00%Source: Fair Isaac CompanyPublic RecordsWe also obtain data from national databases about evictions, convictions and sex-offender histories.

Then we reduce once or twice or notice issues with the listing. 

I have several rentals occupied by 2-4 adults of the same sex.