that all said a simple call to a title company .. talk get the head title examiner on the phone if you can and run the scenario by them they should be able to help you..

I have been involved in the real estate business as a title searcher / examiner for over 20 years and am now looking to get involved in the REAL side of the business.  

I don't recall any bank examination where that institution had zero issues, just doesn't happen, most are simply mistakes so nothing alarming.

No financial information is taken at face value, I give 50% confidence if they show their books, that may go up after examination but often it's irrelevant to me.As mentioned, if you put people on the spot, that may lie, so don't go there, find out for yourself.

I will examine my own equity build up a little more closely.I think I have have been somewhat unclear in my first post which I apologize for. 

One thing to examine and account for = age of homes.  

Examine the Condo Bylaws and Declarations. 

This should have been part of your due diligence, to review and examine the current leases.As Nathan mentioned above, most often times it's better to let the current tenants out, make your changes, and rehab, then start fresh with tenants willing to pay market rent.  

Rental real estate is placed in service on the day that both of the following happen (1) the unit is in habitable condition and (2) the unit is advertised as available for rent.I think you and your tax professional need to examine whether the occupants of the main house had use of the ADU either formally under their lease agreement, or informally.

Regarding your suggestion about looking at the Midwest, I have to admit that it's a market I haven't examined yet, but from your description sounds promising.Re: stock investing, I am self educated and previously traded primarily in options.