How do you properly gauge the work that goes into this? 

Check with Proper Insurance https://www.proper.insure/ they specialize in STR insurance

If the proper was listed on the MLS before hand most deff the building dept k ew its condition and has an idea of what was changed.

How do you properly read an inspection report?

@Ross Y.With everything you described in detail regarding your spouse already actively managing your rentals and being able to properly qualify as a RE Professional (included spending more than 750 hrs/yr$ in that role, yes, your Cost Segregation (including any first year bonus depreciation) can offset your other W2 taxable income.

The ADU/duplex idea is tantalizing (they could be 100k cheaper and yield higher rent than a legal technical duplex), but it's always illegal (when not owner occupied and properly licensed) and cities have a really big stick they can shake at you if your neighbors complain.

We will have 2 means of e-gress, proper ceiling height (7ft. 6in), 1,500 sq. ft per unit, etc. for the basement. 

Make sure you'll do proper screening for potential tennant even though you're not completely protected from bad tennants.

If you want to do either well, you should devote proper time.As far as side hustles, now is the best time in history for people to earn money.

Take ownership of your mistake and learn to do the proper due diligence recommended above😊