The Private Equity and Institutional investor is playing the ADU game - I’m working with them.

Under Alabama law, that is a VERY dangerous play and you could end by losing money.You also cannot sit back and let him build the house and say "Thanks."

Thats going to play a big role in your options i think

However, I received some feedback from one of my partners that the play here would be for an investor to subdivide or re plat the land for a multiple tenant situation.

I'm also finding that a single large repair can wipe out a whole year of income, making me wonder if cheaper cashflowing properties is the right play. 

You’ll either need to focus on high-cash-flow opportunities or equity-building plays (forced appreciation in value-add properties.

Look, we were for most part playing a game of American Football for a long time.

@Marko BukvaI'm not entirely clear on the plan and ownership, but there are potentially several different types of tax at play for a transaction like you're discussing - gift taxes, estate tax, income tax, property tax, documentary transfer tax, etc. 

Do some digging to see if there is something more at play or if he is just being difficult because he is a difficult person.

Divorce - its easier if the house is in the divorce decree otherwise you need to play mediator between parties to come to an agreement.