You can only play games for so long.Chances are your next door neighbor is an IRS agent and turns you in when your tenants blocks their drive or some other random event disturbing your IRS neighbor.ADU catches fire and your insurance won't cover you, because it was an illegal and unpermitted structure.The city inspector told the last guy not to build or rent it, and is now pissed and wants to make an example of you and just red tags the whole property and no one can occupy for the next 1-2-3 years while you wait for a hearing.Then when you get the hearing, "staff" recommends you tear the whole structure down, and if you still want an ADU, you can apply for a permit and rebuild it.Your tenant quits paying rent and won't move out and you can't evict them, because there is no valid lease and they're just your "roommate".Probably a dozen other bad things can happen to you when you do stuff like this. 

Hard Money lenders cannot lend to you personally on a home that you intend to occupy. 203k Loans and HomeStyle Renovation Loans are NOT harder to qualify for.

Additionally, the right of redemption only applies if the property was owner occupied during the 90 days prior to the sale and this is not the case here. 

Surplus line is what I have been looking for as I am involved with an older property that is typically found to be uninsurable by a lot of other mainstream insurance companies due to the properties age and some of its original features and surroundings, I just have a question and have done some reading on this and it's really not too clear and it sounds it can go either way really with this and I'm fairly new to all this so I am learning a lot of things as I go but should the private non traditional mortgage lender be listed as additional insured while the person occupying & buying the home and also purchasing the property from the lender be listed as mortgagee?

.* FHA loans require both parties to owner occupy for 1 year* A 203k loan is not a first time buyer program, you can own a home and still use the program as long as you live there* The loan must be made to a person, not an entity. 

Any ideas how to lower this or use it as a owner occupied property?  

SBA loans can also be used to purchase existing real estate, as long as at least 51% of the square footage is owner occupied (so occupied by your business). 

There are significantly less opportunities for HELOC on non-owner occupied but there are some (you would likely need to investigate to find a few).  

@Nick CooperAnything sub 25% down for 2-4 units that are non-owner occupied will be DSCR/ a portfolio product.

And when you do have a list is cold calling the best way to reach owners as direct mail would most likely go to their tenants and not the owner if not occupying the property?