If so, how did you approach it initially?

It is about an 11% yearly return on my initial investment.

We were initially looking out of state for a potential move and or investment property just because the property taxes without being able to homestead, plus high cost of insurance, and harsh weather on homes made me feel like it might not be worth it.

This creates an initial negative equity position that consumes the initial cash flow, sometimes for many years.

This creates a negative initial position.

You would have earned 9% on the initial $5K invested, or $450.  

There will likely be a partnership return required where you flipped a house with a partner and lost $120,000.If you sold the other property within the same partnership, it will also be reported on that partnership return.The net result to you is that you will receive a K-1 showing your income / loss which you then use to report on your individual return.If you made no money within the same year, you likely pay no additional taxes / get no additional refund.Best of luck.

Initial Equity: The discount you achieve when buying below market value.

If it's in the restricted zone (within 31 miles of the coast or 62 miles from an international border, you have the choice between using a bank trust and paying the fees mentioned above or using a Mexican corporation and bearing the costs of establishing and maintaining  the corporation.

This initial negative equity position consumes the initial cash flow.  2) the addition of the adu makes the property multi family and likely makes rent control apply.