I would start a little lower on the totem pole if i were youThis is actually a fourplex property with a small 2 bedroom 1 bath dwelling separate from the 4 units on the same plot of land which is why it is so expensive.

We generally require an appraisal, a survey and builder's risk or vacant dwelling insurance before we fund the loan.

(D)(ii) The lot is zoned to allow single-family or multifamily dwelling residential use and includes a proposed or existing single-family dwelling.Has anyone actually gone through the process of getting an ADU approved w/ a similar setup? 

The cons are that while the listing says it has an accessory dwelling unit, it is really is a finished basement, they currently have a tenant in there at $950 monthly. 

Their definition is:BED AND BREAKFAST: An establishment in a private dwelling that supplies temporaryaccommodations to overnight guest for a fee.

Subsidence is the sifting of your soils "typically" due to saturation or drought around your dwelling. 

I am looking for the Dwelling (fire, water damage), Liability (at least $300k) and loss of rental income from covered loss.

Yes, you need Landlord or Rental Dwelling insurance.Liability is a lower risk when you occupy the home.

Over the course of a two years or, you're sitting on a 3-5 home portfolioOf course, multi-family properties are at a premium, and if you find a deal you may not be in the most desirable neighborhood, but rents are high even for modest accommodation.One very nice development specific to San Diego right now is how relaxed the zoning laws have become with regard to Accessory Dwelling Units (ADU's).

Never dwell on the past but as a local insurance rep.