If it is an interest-bearing account, you will be giving the tenant 75% of the interest accumulated. 

Would the federal tax liability be $140k at year 5 for the sale, with long term capital gains (ignoring any Net Investment Income Tax)?

BTW behind Texas.When all forms of taxes are calculated (income, property, and sales tax), CA ranks below the middle of the nation in total tax rate.  

Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.Investors should research the SEV and the Non-Homestead property tax millage rates to project what the property taxes will be after adjustment.

Additionally, as a new investor, I am curious if you would recommend this strategy based on your accumulated knowledge and expertise.

Its interest income - unless you wanted to run it through a C corp but then you pay corp tax first.Other option is to use a deferred retirement account. 

Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).4) Adding an ADU is a slow process.

I think a good tax person is worth their cost.  

Taxable income is not cash flow.There are a myriad possibilities for taxes.

My last Tax Deeded Property returned 233% ROI.