If you are comparing the full ADU rent to only the rent increase from the BRRRR rehab then yes the ADU will have a much higher rent but now compare the cost.  

Looking at redfin history the prices have been going up rapidly 10-15%+ a year as well as rents up 50% from a few years ago.

If this isn't a separate dwelling unit you can't take losses from the rooms / space you are renting and use them to offset non-passive income (Section 280A of the tax code)Rental expenses are limited to the amount of your rental income and the balance of rental expenses is carried forward. 

My neighbor lives out of state and rents the property.

Morgan just launched a new service called "Story" for rent collection, banking, tenant screenings, etc.

One try to find an out of state investor for it or two, I'd just drop the $250,000+ to renovate and rent it out.

Proposal 1:  Sell well below market value and stay either rent free or very low rent while continuing to be responsible for all repairs and upkeep. 

We'll be listing our primary home for rent in about a year, so adding value to that (e.g. creating a 5th bedroom), and then qualifying for an owner-occupied mortgage in our next city could be a good start. - @Michael Dumler Hahah it was time for a pivot away from my full time job in tech anyway.

But the rents for the area are driven by these factors.

Hey Natasha,It is a great place to start, plenty of inventory whether its for flipping, BRRR-ing, or holding at affordable prices while still having decent rents (with or without section 8)With that, it is a pretty competitive market.