No doubt there is money to be made, but the state has overstepped any sense of ownership from the landlord.

John Hi - check out this article on helping with this exact topic posted just last week here on BP - hope it helps!

Would need to be a national or regional bank that covered both states.  

Sharing some info from two sources this weekRegarding states looking to strengthen seller financing licensing requirements and court decisions for those not licensed:First from Facebook group school of sharks:Hey guys,TX Dept of Savings and Mortgage Lending has some new rules that are expected to go into effect January 01st, 2025.

Hello everyone I wanted to ask here, In the state of California what can make a bedroom legal, what type of requirements do you need to meet?

Be open to the Idea of Investing out of state.

Only issue is 1) that will take two years to get started and 2) Using a loan calculator, it looks like I'll only be able to get a mortgage for $200k which will not buy a duplex anywhere near us (we'd probably have to move out of state).I've thought about some other possible options like buying a duplex in a different state with an FHA loan and living in it.

Oh the house is out of state - which adds another level of stress!  

As @Sebastian Marroquin stated it is important to verify that it is a legal ADU.  

They stated that the “market rent” came lower than expected and tried to tell me that market rents in the area justify $1300, which that’s just what I “accepted” on paper from the tenant.