Last I heard as of June - July, it was said you couldn't rent the ADU and main dwelling, but it seems that's changing.

Increasing rent is one of the main issues we were thinking about.

It sounds to me like you are asking about the classification for purposes of getting a city business license?  

Eliminating the additional cost and inconveniences of a LLC each will serve a similar purpose but even with the LLC you must still have the insurance.

Im relatively risk averse, which is why I paid cash instead of mortgaging but I also wanted the ease of taking the income as my main income.

We are using Redfin/Trulia/Zillow etc as our main source of info.

Also when you buy in Class A areas, you'll want to see what the rent growth is since that's supposed to be one of the main benefits.

That is why from the beginning I made the latter my main focus. 

I've been reading David Greene's Long-Distance Real Estate Investing to build some knowledge but I don't want to get stuck in the analysis paralysis phase and would like to take action as soon as possible.I'm mainly looking for small multi-family properties (duplex, triplex, fourplex) to start with and eventually expand towards commercial properties. 

Income earned from flipping will still be income for the purpose of calculating self-employment taxes, but if you spend it on the rental property it becomes a rental expense and will reduce your rental income.