It may well form part of the bank valuation in terms of square foot, and it may be covered in the habitation license (the habitation license would cover house + annex), but it will be treated differently and need to be closed off for rental.

I live in WA.

We are in the woods where we really wanted to create another sort of living space outside of the square footage of the home. 

A buddy of mine once rushed into a deal that promised sky-high cash flow, but the sponsor’s experience was thinner than a shoestring in Times Square.

In Washington State, there’s often a distinction between short-term guests and tenants, but repeated and continuous occupancy can blur those lines.

I'd guestimate that almost .25 of Fountain Square is STR.

Heads up that Dave Meyer and Henry Washington responded to this question with their own out-of-state investing experiences on yesterday's episode of the BiggerPockets Real Estate Podcast: How to Buy Multiple Rental Properties a Year (Is It Possible?)

If it was me...I'd check with zoning to find out how many dwelling units I could build, and I'd find what the requirements are for those units (type of house, height and setback restrictions, etc.).Then I'd find out what local builders think the cost to construct would be - just get a cost estimate per square foot for 2 or 3 different levels of finish.

I recently moved to Eastsound, WA, an island of the coast.  

Distortion by contrast: MI targeted a lot of high income earners who lived on the coasts, WA, CA, OR, MA, NY, DC ect.