During this time you are not generating any return from the money invested in the ADU.

Without giving the individual's name, even though once it is filed it is public information, could you post the specifics they are alleging or the case number?

I don't understand if I count since I'm living in the property or if it's only the tenants that count towards the limit of individuals that are unrelated living together.

If you are using STR, REPS, or self rental with material participation to convert to active or nonpassive income, you do not have to do this if you have passive business invesment that produce passive income that will exceed the loss generated by depreciation.

Things can and will go bad, but once there is enough monthly cash flow generated it will be extremely difficult for that one big issue to put us away or even 2-3 big issues all at once. 

Could be.I think that for most individual American investors leverage is a critical tool. 

As a would be individual landlord with just a one unit single family property I don’t know I can stomach the risk or withstand a financial assault resulting from an eviction process for a non-paying tenant (or tenants that do extensive damage).I am seriously considering bowing out and selling.

I am a highly motivated individual, however, and I'm dedicated to getting into real estate investing.  

Tax benefits should be considered but not be the sole factor.The 'main benefit' from a tax perspective should be to generate a high return from your real estate investments and not to pay taxes on the return that you get.If you are able to reduce your taxable income, that should be icing on the cake.

Just know that it is a "no days off" kind of business and very mechanical.I would suggest documenting your process via video so that eventually you can bring people on to replace the different hats you will be wearing.Keep in mind of these 5 components of any wholesale business.lead generation, deal sourcing, underwriting, marketing, transaction coordination.