Should i ask the downstairs tenant for the footage to have as proof to have and document for anything in the future? 

You might use the word in the future to explain your idea.   

In other words if you do the electrical or plumbing repair right the first time it’s highly unlikely you will need to repeat the same repair again in the future.

My goal of refinancing was simply lowering our monthly spending to reallocate towards future investments.

The overall LTV (including all 3 mortgages) will be key and your selling point will need to be that the 2nd mortgage ($8k) will burn off in 2.5 years (based on your surprise that it was even out there, I'd recommend that you follow up in 2.5 years and ensure that it's been satisified, so that it doesn't surprise you again in the future).Does the $8k grant vest over the 5 years? 

A project like that will probably take 6 months to 1 year, so what's your expectation for future rents?

I believe we will see an uptick in audits in the near future.

Though I expect that to increase in the future when more ADUs are constructed.

Quote from @Raif Jochim: Bigger Pockets Community -I'm trying to plan for the future and have a question I'd like your thoughts on.  

Given your financial constraints and the property's ineligibility for historic tax credits, this approach allows for reinvestment into assets more aligned with retirement account rules.For future real estate investments, you don't need an LLC for tax reasons.