What Nathan said.You are following the red herring of the (real or imagined) roach problem, but the tenant just told you they cannot afford a $35/mo. rent increase in an under market rent apartment!

Of course, I could just be overly concerned and this is just a kind ol' investor trying to pay it forward.

We have an existing mortgage (backed by these 2 lots and 2 others) and given the increase in appraised value there is no need to pay anything back to the lender when selling the lot.

I do not understand your remark as related to the DSCR loan.  2 ADUs are not allowed by f/f conventional financing but is not always enforced.Fortunately if you stay with the current tenant without a refi, by the time you pay principle it is likely the rent will have increased enough to absorb the increase mortgage payment. 

This would apply to your unit.Your biggest concern with setting the rent should be the near future. 1) Your insurance is guaranteed to go up, probably dramatically.  2) You may get an insurance assessment bill to cover the CA Fair Plan losses.

My concern is the the long construction time and rising interest rates.  

Hudson is a pretty "touristy" town, so BnB's became a big thing and the local gov't was concerned about the amount of long term housing available.

Talk to your insurance provider about your concerns and they can recommend the right coverage.

Airbnb claims that setting up a "photo tour" on your listing will increase bookings by 6 percent, for example.  

Your concerns are completely valid.