Essentially he rehabs his properties to make them undeniably high quality (not just "good enough" for section 8) in order to generate a huge demand and thus be able to be extremely selective in his tenant screening process. 

I’m trying to be smart economically, but also get something that won’t cause us problems with low quality. 

You need to personalize it first and foremost (send me a message if youd like to strategize, I help folks all the time) but also spend some time making sure you list is high quality and worth sending mail to.

Reasonably priced good quality stuff, or good deals on nice (but not that nice) things are the way to go.

In addition buying an existing ADU has the following advantages over building one 1) typically pay less for the ADU than the cost of doing a hands off ADU addition 2) get RE purchase financing which is superior to financing that is specific to the ADU addition.  3) there is no delay between financial outlay and income when purchasing an existing ADU.  

I doubt quality tenants would want to rent in that area.

There is little doubt that Merced will have superior cash flow vs San Diego in the near term.  

I, personally, would rather have better quality than quantity, with reasonable nominal returns.

Just like having a good team brings success on the field, having quality leads brings your success in your sales. 

A quality local RE Broker/Agent in tandem with a reliable contractors should be able to help you with full analysis of post rehab value.