One other question I wanted to ask is if during a short sale if the lender would be agreeable to pay a portion of the closing costs?

Most cost segregation firms will provide a free cost/benefit analysis quote to help you determine if the tax benefits from the study will outweigh the costs.

Additionally it can often results in multiple additional tax filing requirements riving their tax filing costs up unexpectedly. 

I already have some equity in the property after doing a complete rehab but I don't want to diminish my returns selling it after one year, paying for commissions/closing costs.

Costs a fraction of the funds compared to hiring a cold call agency.

Far more costly to transfer property at a later point than simply purchase in an LLC on day one.

I recently completed one on a multifamily property and found it to be a cost-effective approach.That said, there are a couple of additional factors to consider beyond the code differences between a garage conversion and new construction:Coastal Overlay Zones – If your property is in a coastal overlay, building a ground-up ADU may require Coastal Commission review, which can add time and complexity to the process.

So if the house is worth 300k and you owe 200k then most you could pull out would be 40k (minus costs) and it would be a second mortgage most likely which would be expensive. 7.5-9.5% likely.But, you can put as little as 15% down for a conventional loan on a single family.

With Allstate’s RCV policy (not ACV), they estimated the rebuild cost at ~$1.3M.

This is not the cheap markets but the higher cost markets.This year I added a half bathroom out of existing space in a very expensive area.