To mitigate these risks:*Have an Alternate Plan – Be ready, if the market slows, to rent out the property.

Negotiate alternatives thereafter, but start the clock. 

Why not use bank debt or alternative lender debt if you don't qualify yet for bank originated debt?

Third, If you want to offer an alternative (which you're not required to) - If you have a PM plaform like Baselane or RentRedi (free for BP Pro members) you can offer credit boosting for tenants that pay on time.

Alternatives include using a 1031 exchange to buy a new rental property or completing the exchange first and then doing a cash-out refinance to fund the ADU.

My local area has high property tax and makes me wonder about PA as an alternative. 

Is anyone else aware of reasonable alternatives?

Another alternative here could be refinancing although it is likely your rate is well below today's rates.This is not financial advice, I am not a lender... just sharing some insights that have been shared recently. 

We'll likely have to look for alternatives to our primary house since we won't be moving much anymore, but I like the idea of small multis and getting a lending who fully understands the VA is certainly good insight.Thanks,Fritz 

@Ashish Acharya thank you for the helpful tax alternatives!