I'd like the additional flexibility of ownership (modification, a place to make home, renting it out etc) as well as the potential for investment income in the long term.

The only real savings I've found so far is to have the fannie servicer buy the loan docs and do a mortgage modification to save on doc stamps (in Florida) at loan closing, but otherwise I'm just absorbing those costs from the construction loan.  

It has been a functioning ADU for 6 years and there were no modifications to the exterior and only a gas line added for a stove and dry walling up and doorway in the interior.

In my case, they covered the cost of certain equipment/systems if they fail. however the existing equipment is all that is covered - instillation &"modifications" and Upgrades were out of pocket.

Figure out what it would take to foreclose OR what kind of terms you might be able to negotiate with the homeowner through a modification, if it came to that.

My plan is to turn the shop into a house.It would need: a new septic, plumbing, a few windows, eventually a new roof, some layout modifications etc.

In an effort to learn from the 2008 recession banks have put into effect ways to work with people before foreclosing such as loan modification.

@Jesse Juris A loan “adjustment” is a loan modification.

I have even done extensive house plan modifications with success.

California always has the specter of Prop 13 modifications, but those are populist rather than corporatist, and the revenue would sooner go to schools (etc) than banks.