Don't deduct anything that could be considered normal wear and tear.

There will probably still be a time during a major remodel (if you tear it down to studs.) they are still at risk of getting screwed. 

My husband and I have several rentals, and we are looking to tear down a SFH in Imperial Beach and develop two townhomes plus and ADU. 

House is in fixable condition and in no need a tear down.

Some municipalities may ask you to tear it down, some "may" say OK with full engineering reports "if" there are other duplexes in the area.

Yeah, it's an interesting model--I can see how it could work really well in some scenarios and not work at all in others. ...for one thing, you have to use furnishings that in-line with the look and grade of the property, and which are appealing to the typical tenant--which I'm sure can be a bit hit and miss...   ...I suppose that one hidden benefit with a furnished unit is that you don't have so much wear and tear from tenants moving furniture in and out, hanging pictures on the walls, etc....I just finished a rehab at a LTR property--the tenants were pretty good and didn't cause any excessive wear/damage, but even then, there's always a lot of patching and re-painting that needs to be done after long term tenants leave....

Anything a carpenter can do is comparativley cheap to the above.It can be done if it is a great house in a high value location, but frankly probably more eonomical to tear down and build new.

If they are that rare then what are the odds of finding land/tear downs where you can legally created 2-4 units?

The new buyer wants our LLC, so that he doesn't have to go through the waiting periods to tear down. 

He and his crew will visit your property and sneakily and publicly TEAR UP the property so that the Judge will go along with his opinion!