I see many situations where one generation wants to buy out a prior generation or, more typically, siblings.

I'm not counting those since I don't manage them, but I typically avoid cities and states with laws antagonistic to landlords.

Consult you insurance broker for specifics but I found this policy to be very protective and reasonably priced.With regards to an umbrella policy they are typically good to have.  

What you will find is they typically appraise for far less than the hands off cost to add the ADU.  

You should be able to pay off the loan anytime during that period, without any sort of penalty.

typically no special license is needed when doing it for hard money loans that I am aware of. there may be states like california and nevada that are tricky where lenders need a license of some sort but for most part brokers i have seen are not licensed. 14 or 15 states require state license and NMLS registration.

In general in single family zoned areas, JADU typically subtract value (I suspect largely due to the OO requirement).

Has anyone run into problems with this sort of lending?

@Brice Alef-Torrisi putting each property in its own LLC is usually overkill.Getting a bank account for each LLC is typically something you need to do to avoid "piercing of the LLC corporate veil" (actually depends on tax selection you made for LLC), but is also overkill.You haven't indicated how you are holding the deed for the latest property.If in your name or same LLC, you don't need a separate bank account.If in separate LLC, you can create a Master LLC, have each property LLC hire the Master LLC to manage their affairs, and just get a bank account for Master LLC.This is an opinion, not advice, so lookup CPA Frank Alcini in Troy for expert advice.

@Kaleb JohnsonRecommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?