What we typically do during this time of year on our owner occupied non performing loans is not perform any legal actions between thanksgiving and christmas. 

Conventional non-owner occupied loan. 20% down.What was the outcome?

Good luck with whatever you decide! 

The area tends to be more owner occupant friendly rather than renting.

For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy).

Fellow STR owner/manager from TX.I do think there is value in having some pre guest documentation in the event that you have a guest come in and make false claims about cleanliness, etc. 

I'm not sure if you're aware but STRs are not legal in JC unless you the owner live in the building 

If they are renting have you checked with owner?

If I decide to go with option 1, I will have to borrow the money for the renovations at my primary and it may make it harder to qualify for a loan given the little or no cashflow. 

One of the smarter recent strategies is the owner is living in the ADU and renting out both levels of the main house on AirBnb.I invest in the Bay Area and Indianapolis metro area (Class A suburb and Class C).