Worst case scenario, we sell the seasoned, performing note at a discount.

Previous owners converted basement space into livable space (kitchen, shower, bathroom), but it does not comply with legal ADU unit standards (one separate entry, 6'10ft ceiling).

Typical renovations include:Cosmetic Updates: Painting, flooring, kitchen and bathroom upgrades, and landscaping.Structural Repairs: Fixing any underlying issues such as foundation repairs, plumbing, or electrical updates.Efficiency Improvements: Adding energy-efficient windows, new HVAC systems, and better insulation to increase the property's overall value.The goal of the rehab phase is to increase the property’s market value while making it an attractive place for tenants.

I recently added a half bathroom out of existing space in a very high cost market.  

For what it's worth, we offered our homes at a discounted rate for a former guest who was looking for a place to stay. 

Offering discounts for weekday or longer stays could also help improve occupancy.

Some lenders offer discounts to return borrowers so maybe look into both flip and DSCR rates when finding a lender. 

He went back inside and got another photo of the bathroom.

As a broker, I "buy" a mortgage at a discount from a direct wholesale lender, then mark it up and "sell" it to my client to make a profit.

As someone who did something very similar to this for the last 2 years - rented out my 2nd private bedroom and bathroom in my apartment (rental) furnished to traveling professionals and medical students - I think it's a great idea!